DUBAI: Saudi Arabia’s stock market may edge up on Tuesday after the government announced details of its economic reform plan, while a positive global environment looks likely to support other Gulf markets, though turnover will be thin because of Ramadan.
MSCI’s broadest index of Asia-Pacific shares outside Japan is up 1.2 percent and Brent oil futures hit a seven-month high of $50.83 per barrel overnight before easing.
In Saudi Arabia, Monday night’s 110-page reform announcement contained hundreds of projects and targets, including substantial austerity measures. The government aims to reduce the value of public salaries and wages as a proportion of the state budget to 40 percent from 45 percent by 2020, and cut water and electricity subsidies by 200 billion riyals ($53 billion).
Mohamad al-Hajj, senior analyst at EFG Hermes in Dubai, said there would be more pain for Saudi companies, especially those which were subsidy-reliant, in the near term as they were hit with further austerity measures.
However, the prospect of more austerity was already known to the market, and Hajj said the plan also contained opportunities for investors.
“We still like retail and healthcare stocks that are plays on consolidation and efficient spending, as well as companies that are relatively free of subsidy,” he added. An appendix to the plan lists spending targets for over 500 hundred initiatives, including 4.7 billion riyals to improve hospital emergency rooms and intensive care units.