Saudi Arabia’s entry into international bond markets is likely to pave the way for the inclusion of its stock market in the MSCI by the end of 2018, according to NCB (National Commercial Bank) analysts.
The Kingdom’s first foreign bond sale in October set an emerging market record of $17.5 billion which reflects strong creditworthiness and investor confidence despite the oil plight, a recent report from the bank pointed out.
Investors put up orders of $67 billion in search for yield, enabling the Kingdom to increase the amount borrowed, eclipsing Argentina’s $16.5 billion and Qatar’s $9 billion bond sales earlier this year.
The global bond issuance came as an answer to the tightening liquidity problems faced in the domestic market as dwindling oil revenues stretched local funding sources. The Kingdom’s entry into international bond markets will also pave the way for the inclusion of its stock market in the MSCI by the end of 2018 and the world’s largest IPO (initial public offering) from the Kingdom’s most valuable company, Aramco.
The swift and decisive manner in which the government conducted its much needed reforms assured investors of its ability to steer the Saudi economy away from the current slowdown. Low debt levels, which by the end of 2015 posted 5.9 percent of GDP, indicate a large untapped debt capacity.
Investors speculated that the 10-year Saudi sovereign bond would be sold at a 50 bps premium to Qatar’s treasuries plus 150 bps, instead; the premium was only 30 bps at 3.25 percent. Negative yields in many major central banks and the stalling Fed rate hike have pushed investors to fervently seek higher yield in the EM, the NCB report said.
Saudi Arabian Monetary Agency’s (SAMA’s) monthly bulletin for the month of August reveals that broad money supply remains downward trending given the tighter liquidity conditions. By annualized comparison, M3, the broadest measure of money, slid by 2.5 percent to SR1.75 trillion. The monetary base edged lower by 0.3 percent to SR305.3 billion affected by a 4.8 percent decline in deposits with SAMA.
On the other hand, currency outside banks inched up 0.9 percent while cash in vault rose by 7.7 percent. Total deposits with SAMA fell to SR98.6 billion of which 96.4 percent are bank deposits. M2 money supply declined by 2.3 percent Y/Y to SR1.6 trillion despite demand deposits falling by 10.7 percent Y/Y as a 19.6 percent surge in time and savings deposits dampened the impact.
The NCB report said demand deposits stand at SR946.8 billion, accounting for over half the liquidity in the financial system whereas time and savings stand at SR455.2 billion which is 26 percent of broad money. Quasi monetary deposits slid by 3.8 percent Y/Y to SR176.6 billion on the back of declining foreign currency deposits by 2.7 percent Y/Y to SR148.7 billion and outstanding remittances plummeting by 31.4 percent Y/Y to SR12.7 billion.
The cost of living index rose by 3.3 percent Y/Y in the month of August affected by upside pressure from housing and utilities, health, transport, and education. The housing and utilities sub-index surged by 7 percent Y/Y as water supply prices recorded an upturn of 186.4 percent Y/Y. The health sub-index rose by 6.6 percent Y/Y on the back of a 13.6 percent Y/Y upturn in hospital services.
Moreover, the transport sub-index was up 8.5 percent in August pressured by a 60.8 percent Y/Y surge in fuels. The educated sub-index increased by 5.4 percent Y/Y pressured by primary and secondary education upturning by 8.6 percent and 7.8 percent, respectively.

Source: Arab News