July 2016 - Al Rajhi Capital
Economic Research July 2016
Research Department ARC Research Team Tel 966 11 211 9370, [email protected]
Saudi Arabian economy
Saudi Arabian Economy The Kingdom’s Q1 2016 GDP grew at the slowest pace in three years as low oil prices led to slowdown in government spending and lower subsidies likely affecting consumer spending. However, even as Saudi Arabia PMI fell m-o-m in June, it stood at a robust 54.4, indicating growth in the non-oil sector. Foreign reserve assets rose on a monthly basis for the first in 16 months, which could possibly be due to new foreign loans raised by the government. POS transactions grew for the first time in four months in May 2016. Bank credit to the private sector rose year-on-year in May 2016, albeit at a slower pace compared to the previous month, while the deposits declined at a faster pace thereby pushing the loan-to-deposit ratio to 89.9%, its highest level since November 2008. Saudi Arabia’s crude oil exports fell to its lowest levels in six months in April 2016 despite high production level, as more oil was used to cater to domestic demand and lower demand from overseas refineries owing to seasonal maintenance. The Kingdom’s non-oil exports and imports declined at a faster pace in April 2016, on a yearly basis, as compared to the previous month. On the equity front, TASI edged up 0.8% on a monthly basis in June 2016, brushing aside the aftershocks from ‘Brexit’. Trading volume on the exchange was muted in June 2016 owing to Ramadan. Foreign Reserve Assets: Foreign reserve assets rose on a monthly basis in May 2016, the first increase in 16 months. On a yearly basis, the decline in foreign reserve assets eased slightly in May 2016 (-14.5% y-o-y) as compared to the previous month (-15.5% y-o-y). The monthly rise in the reserves could be due to the planned government bond issuance by the Kingdom to cover its budget deficit. Further, measures taken by the government to prioritize expenses also seems to have helped reduce reliance on foreign reserves to cover deficit. Key indicators: KSA’s crude oil production fell 1.1% y-o-y in June 2016. Brent September futures declined 1.2% m-o-m to reach US$ 49.71/ barrel at the end of June 2016. Money supply (M3) dropped 3.2% y-o-y in May 2016, while inflation rose by 4.1% y-o-y in May. Point of sale transactions (POS) grew 5.8% y-o-y, while ATM cash withdrawals rose by 1.1% y-o-y in May 2016. Crude price outlook: The US Energy Information Administration (EIA), in its June 2016 report, estimated Brent crude oil prices to average around US$43/barrel in 2016 and US$52/barrel in 2017. Table 1 Key macro indicators Variable
May-16
Apr-16
2015
2014
Inflation Rate (2007=100)
4.1%
4.2%
2.2%
2.7%
Average Oil Price (Arab Light) (US$/Barrel)
43.5
38.2
49.9
97.1
-3.2%
-1.5%
2.6%
11.9%
Money Supply (M3) Total Banking Sector Claims Interbank Interest Rate (3 Month) (BP) Repo Rate (BP) Reverse Repo Rate (BP) GDP Rate at Constant Prices (2010=100)
16
15.6
10.5
11.3
2.099
1.912
0.88
0.936
2.00
2.00
2.00
2.00
0.5
0.5
0.5
0.25
Q4 2015*
Q3 2015*
2015*
2014* 3.6%
1.8%
4.0%
3.5%
Current Account to GDP Ratio (current prices)
-15.8%
-6.6%
-8.3%
9.8%
Total Imports (fob) to GDP Ratio (current prices)
25.5%
23.5%
24.0%
21.0%
8.2%
7.7%
7.6%
7.7%
Non-oil Exports to GDP Ratio (current prices)
Source: SAMA, * Provisional
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
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Economic Research July 2016
Gross Domestic Product Q1 2016 GDP grew at the slowest pace in three years mainly due to slowdown in non-oil government and private sector
As per the latest GDP data released by CDSI, the Kingdom’s GDP for Q1 2016 grew by 1.54% y-o-y (Q1 2015: 3.27% y-o-y), recording its weakest pace in three years. The GDP growth rate slowed as low oil revenues led to slowdown in government spending and revision in subsidies, which increased costs for corporate as well as individuals. The oil sector grew 5.14% y-o-y in Q1 2016, versus a 0.21% y-o-y in Q1 2015, as the Kingdom raised crude oil production and exported more refined products. Meanwhile, the non-oil sector shrank 0.67% y-o-y in Q1 2016, as compared to a yearly rise of 5.66% in Q1 2015, owing to a sharp decline in the non-oil government and private sector. This is partly attributable to the high base effect of Q1 2015, when a 2-month salary bonus paid by the government and some corporate boosted spending.
Crude oil dynamics Crude oil export declined to 7.44 mbpd in April 2016, as compared to 7.54 mbpd in March 2016
As per the data released by Joint Organization Data Initiative, Saudi Arabia’s crude oil exports fell in April 2016 to the lowest levels in six months, despite higher production, as more oil was used for power generation on the domestic front. Lower demand from overseas refineries which were shut for maintenance in April and May also negatively impacted Kingdom’s crude oil exports. Crude exports declined to 7.44 million barrels per day (mbpd) in April 2016 vs. 7.54 mbpd in March 2016. Moreover, the Kingdom’s crude oil inventory from domestic as well as overseas storage facilities, declined to the lowest levels since August 2014. The inventory fell to 290.9 million barrels in April, versus 296.7 million barrels in March, owing to increased sales in the spot market.
Table 2 Crude Oil Exports
Country
Mar-16
Apr-16
y-o-y
m-o-m
Saudi Arabia
7.541
7.444
-3.8%
-1.3%
Russia
5.161
-
-
-
Iraq
3.809
3.364
9.3%
-11.7%
Canada
2.278
2.449
0.3%
7.5%
Kuwait
2.198
2.027
5.2%
-7.8%
Source: JODI Data, Al Rajhi Capital, Data For Russia April-2016 not released.
Figure 1 Gulf Crude oil exporters
Figure 2 Global Crude oil exporters Mbpd 6
Mbpd 9 8
5 7 6
4
5 3 4 3
2
2 1 1 0
0
Iraq
Kuwait
Iran
Saudi Arabia
Source: JODI Data, Al Rajhi Capital, Data for Iran not released since February 2016.
Disclosures Please refer to the important disclosures at the back of this report.
Russia
Canada
Norway
Mexico
Source: JODI Data, Al Rajhi Capital. Data for Russia April 2016 not released.
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Economic Research July 2016
Crude oil prices declined in June 2016
Crude oil prices (Brent September futures contract) dropped 1.2% m-o-m in June 2016, as compared to a monthly rise of 4.6% in the previous month. The monthly fall in crude oil prices can be attributed to the gain in the US dollar following Britain’s exit from the European Union and the restored crude oil production in Canada and Nigeria. Crude oil prices was also impacted by the rise in US oil rig count as well as easing concerns regarding supply outages in Norway. WTI (August futures contract) and Arab light declined 2.4% m-o-m and 0.2% m-o-m respectively in June 2016. The Kingdom’s crude oil production slipped 1.1% y-o-y in June 2016, versus a yearly rise of 0.1% in May 2016.
Figure 3 Saudi crude oil production trend
Figure 4 Crude oil prices trend
mbpd
120
10.8
12.0%
10.6
10.0%
10.4
8.0%
110 100 90
10.2
6.0%
10.0
4.0%
9.8 2.0%
9.6
0.0%
9.4 9.2
-2.0%
9.0
-4.0%
8.8
-6.0%
Saudi Crude oil production
80 70 60 50 40 30 20
Brent
YoY growth
Source: Bloomberg, Al Rajhi Capital
WTI
Arab Light
Source: Bloomberg, Al Rajhi Capital
Non-oil foreign trade Saudi Arabia’s non-oil exports and nonoil imports in April dropped by 18.4% and 27.2% respectively.
As per the latest foreign trade data released by CDSI, Saudi Arabia’s non-oil exports dropped 18.4% y-o-y in April 2016, as compared to annual decline of 9.1% and 7.4% in March and February, respectively. The fall in non-oil exports can be primarily attributed to decline in exports of chemical products (-35.5% y-o-y), which constitute 25.1% of total exports, coupled with a 9.1% y-o-y fall in plastics & rubbers, which accounted for 32.8% of total exports. Meanwhile, non-oil imports dropped -27.2% on a yearly basis in April 2016, versus 25.6% y-o-y fall in March. The non-oil imports were dragged down by ordinary metals (-38.1% y-o-y) and machinery & electrical (37.4% y-o-y), which together account for 32.5% of the total non-oil imports. Meanwhile, UAE maintained its position as the topmost non-oil export destination (17.0% of the total exports), while China was at the foremost position of the non-oil imports destinations, constituting 13.1% of the total imports, closely followed by USA, which accounted 13.0% of the total imports.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Table 3 Non-Oil Exports
Commodities (SAR mn)
Feb-16
Mar-16
Apr-16
Plastics & Rubbers
3,967
1,696
Chemical Products
3,333
3,699
Ordinary Metals
1,110
Transport Equipments Others Total
% y-o-y
% m-o-m
4,412
-9.1%
160.1%
3,381
-35.5%
-8.6%
1,008
1,183
-8.3%
17.4%
1,495
1,287
1,157
-14.0%
-10.1%
3,255
7,386
3,314
-11.8%
-55.1%
13,160
15,076
13,447
-18.4%
-10.8%
Source: GAS, Al Rajhi Capital
Figure 5 Components of non-oil exports
Figure 6 Export Destinations
7.5% 24.6% 32.8%
17.0%
4.5%
8.6%
5.9%
65.0% 8.8% 25.1%
Plastics & Rubbers
Chemical Products
Transport Equipments
Others
Ordinary Metals
China
Source: GAS, Al Rajhi Capital
Table 4
UAE
Singapore
India
Others
Source: GAS, Al Rajhi Capital
Non-Oil Imports
Commodities (SAR mn)
Feb-16
Mar-16
Apr-16
% y-o-y
% m-o-m
Machinery & Electricals
11,193
10,740
9,468
-37.4%
-11.8%
Transport Equipments
7,059
8,668
7,886
-18.0%
-9.0%
Ordinary Metals
3,582
4,380
3,798
-38.1%
-13.3%
Chemical Products
4,058
4,080
3,574
-14.4%
-12.4%
Others
14,793
16,176
16,044
-23.4%
-0.8%
Total
40,685
44,044
40,770
-27.2%
-7.4%
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Figure 7 Components of non-oil imports
Figure 8 Source countries
13.1%
23.2%
39.4%
13.0%
6.3%
61.2%
19.3% 6.4%
8.8%
9.3%
Machinery & Electricals
Transport Equipments
Chemical Products
Others
Ordinary Metals
Source: GAS, Al Rajhi Capital
China
USA
Germany
Japan
Others
Source: GAS, Al Rajhi Capital
Figure 9 Non-oil export trend (y-o-y)
Figure 10 Non-oil import trend (y-o-y)
YoY 80.0%
YoY 60.0% 50.0%
60.0%
40.0% 40.0%
30.0% 20.0%
20.0%
10.0% 0.0%
0.0% -10.0%
-20.0% -20.0% -30.0%
-40.0%
Non-oil Export
Non-oil Import
Source: GAS, Al Rajhi Capital
Source: GAS, Al Rajhi Capital
Monetary and credit indicators Money supply Money supply (M3) registered an annual decline in May 2016 for the fourth month in a row
The broader money supply (M3) dropped at a faster pace of 3.2% y-o-y in May 2016, standing at SAR1,762bn, versus a fall of 1.5% y-o-y in April 2016. The sharper decline in money supply (M3) is due to a larger annual drop in money supply M1 and the subdued annual growth in other quasi-money deposits. However, on a monthly basis, M3 declined at a slower pace of -0.4% in May as compared to a fall of 0.5% m-o-m in April 2016.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Figure 11 Money supply growth (y-o-y)
Figure 12 Deposits break-up
25.0%
SAR bn 1,200
20.0%
1,000
15.0% 800 10.0% 600 5.0% 400 0.0% 200
-5.0%
0
-10.0%
M1
M2
M3
Time and Saving Deposits
Source: SAMA, Al Rajhi Capital
Demand Deposits
Source: SAMA, Al Rajhi Capital
Credit and deposit growth The loan-to-deposit ratio in May 2016 rose to its highest level since November 2008
Total credit growth (banks’ claim on the private sector) eased slightly to 9.4% y-o-y in May 2016 (10.1% y-o-y in April 2016). Moreover, deposits dropped at a faster rate of 3.4% y-o-y in May 2016 as compared to a fall of 1.7% on a yearly basis in April. The drop in deposits is mainly due to fall in private sector deposits. On a monthly basis, credit given to the private sector rose by 0.7% in May 2016, whereas deposits declined by 0.5% m-o-m, leading to a rise in the loan-to-deposit ratio to 89.9% in May 2016, as compared to 88.7% in April 2016.
Figure 13 Credit and deposit growth
Figure 14 Loans to deposits
YoY 20.0%
92% 90% 88%
15.0%
86% 84%
10.0%
82% 80%
5.0%
78% 0.0%
76% 74%
-5.0%
72%
Deposits
Credit
Loans to Deposit ratio
Source: SAMA, Al Rajhi Capital
Source: SAMA, Al Rajhi Capital
Foreign reserve assets Foreign reserve assets recorded an improvement on a monthly basis for the first time in 16 months
Foreign reserve assets rose on a monthly basis for the first time in 16 months in May 2016. Foreign reserves advanced by 0.1% m-o-m in May, versus a monthly fall of 1.1% in April. Further, foreign deposits abroad rose by 7.4% m-o-m in May, as compared to a drop of 1.7% m-o-m in April. However, investments in foreign securities declined by 3.4% m-o-m in May, versus a fall of 0.8% on a monthly basis in April. The monthly
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
rise in foreign reserves could be possibly due to the debt issuance to finance the Kingdom’s budget deficit. Moreover, stable oil prices and measures taken by the Government to control spending has also seems to have helped the Kingdom to reduce its reliance on foreign reserves. On a yearly basis, the pace of decline of assets eased to 14.5% in May vs. yearly drop of 15.4% in April 2016. The Kingdom’s foreign reserves stood at SAR2,180bn (~US$581bn) at the end of May 2016. Figure 15 Foreign reserves
Figure 16 Major components of foreign assets
SAR bn
3,000
20.0%
SAR bn 2,500
15.0%
2,500
10.0% 2,000
2,000
5.0% 1,500
1,500
0.0% -5.0%
1,000
1,000
-10.0% 500
500
-15.0%
0
-20.0%
Foreign Reserves Assets
YoY
Source: SAMA, Al Rajhi Capital
0
Foreign Currency & Deposits Abroad
Investment in Foreign Assets
Source: SAMA, Al Rajhi Capital
Inflation dynamics Inflation (y-o-y) edged down slightly in May 2016 as compared to the previous month
The general index of cost of living rose by 4.1% y-o-y in May 2016, as compared to a rise of 4.2% y-o-y in April 2016. Inflation in the Kingdom edged down as compared to the previous month as the transport segment rose at a slower pace of 11.3% y-o-y in May as compared to a rise of 12.5% y-o-y in April, along with the slow rise of 0.3% y-oy in food & beverages segment versus a 0.8% y-o-y rise in April. However, inflation in housing, water, electricity & gas segment advanced to 7.7% y-o-y as compared to 7.5% y-o-y in the previous month, followed by furnishing, household equipment and maintenance segment which also rose at the same yearly pace of 2.7% as in April. On a monthly basis, the overall inflation registered the same reading in May 2016, as it was in the previous month.
Figure 17 Inflation trend (y-o-y)
Figure 18 Inflation drivers (y-o-y)
5.0%
14.0%
4.5%
12.0%
4.0%
10.0%
3.5%
8.0%
3.0%
6.0%
2.5%
4.0%
2.0%
2.0%
1.5%
0.0%
1.0%
-2.0%
0.5%
-4.0%
0.0%
General Index
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
Food And Beverages
Furnishings, Household
Transport
Housing, Water, Electricity, Gas
Source: GAS, Al Rajhi Capital
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Economic Research July 2016
Stock market indicators The benchmark index (TASI) advanced 0.8% m-o-m in June 2016, as compared to a monthly decline of 5.3% in May 2016. The overall index was driven by sectors such as Energy, Real Estate, Building & Constructions, Telecommunications and Cement which rose 18.6%, 10.1%, 4.1%, 1.7% and 1.5% respectively. Dar Al Arkan Real Estate Development Co. was the top performer on the index, registering a monthly return of 29.86% in June 2016.
Benchmark Index TASI gained 0.8% mo-m in June 2016
Figure 19 Tadawul index performance
Figure 20 TASI one year historic 12-month forward P/E chart
Index
Million
6650
400
16.0x
6600
350
15.0x
300
6550
14.0x
250
13.0x
6500 200
12.0x
6450 150 6400
100
6350
50
6300
0
11.0x 10.0x 9.0x 8.0x
Volume RHS Source: Bloomberg, Al Rajhi Capital, Data from 31
st
TASI May 2016 to 30th June 2016
Figure 21 Top 5 Sectors MoM
Source: Bloomberg, Al Rajhi Capital
Figure 22 Bottom 5 sectors MoM
20.0% 18.0% 16.0%
0.0%
14.0% 12.0%
-1.0%
10.0% 8.0%
6.0%
-2.0% -3.0%
4.0% 2.0%
-4.0%
0.0% -5.0% -6.0% -7.0%
Source: Tadawul, Al Rajhi Capital, MoM returns for June 2016
Disclosures Please refer to the important disclosures at the back of this report.
Source: Tadawul, Al Rajhi Capital, MoM returns for June 2016
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Economic Research July 2016
Figure 5 Top 5 Gainers for the month of June Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Sectors
Dar Al Arkan Real Estate Development Co
29.9%
7.0
52.4
Real Estate Development
National Gas & Industrialization Co
23.7%
2.0
0.8
Energy & Utilities
Saudi Electricity Co
19.3%
81.5
4.8
Energy & Utilities
Arriyadh Development Co
14.9%
2.7
0.6
Real Estate Development
Saudi Real Estate Co
12.6%
2.6
0.9
Real Estate Development
Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Figure 6 Top 5 Losers for the month of June Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Saudi International Petrochemical Co
-8.2%
Saudi Research & Marketing Group Kingdom Holding Co National Shipping Co of Saudi Arabia/The
Sectors
4.8
0.3
Petrochemical
-7.5%
3.3
0.4
Media and Publishing
-6.9%
41.2
0.4
Multi Investment
-6.1%
15.2
1.6
Transport
2.2
0.6
Hotel & Tourism
Abdulmohsen Alhokair Group for Tourism and Development -6.1% Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Consumer spending indicators PMI edged down slightly in June, while POS witnessed improvement in May 2016
Saudi Arabia’s non-oil private sector (Emirates NBD PMI) remained in the expansionary phase to register a reading of 54.4 in June 2016, as compared to a reading of 54.8 in May 2016. The rise in economic activity in June can be primarily attributed to the robust growth in output and new orders. Point-of-sale (POS) transactions advanced 5.8% y-o-y in May 2016 as compared to a fall of 1.4% y-o-y in April. Further, ATM cash withdrawals were up 1.1% y-o-y in May, versus a yearly drop of 1.2% in April. The rise in POS and ATM withdrawals were in tandem with the trend ahead of Ramadan.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Figure 23 Point-of-sale transactions (POS) trend
Figure 24 ATM cash withdrawals trend 50%
SAR bn 80.0
50%
40%
70.0
40%
30%
60.0
30%
20%
50.0
20%
10%
40.0
10%
0%
30.0
0%
-10%
20.0
-10%
-20%
10.0
-20%
-30%
-
-30%
SAR bn 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
POS
ATM Cash withdrawals
YoY
Source: SAMA, Al Rajhi Capital
Figure 25 Emirates NBD Saudi PMI Index
YoY
Source: SAMA, Al Rajhi Capital
Figure 26 Consumer spending trend (POS and ATM cash Withdrawals)
64
SAR bn 80.0
62
70.0
60
60.0
58
50.0 40.0
56 30.0 54 20.0 52 50
10.0 -
48
POS
Source: Bloomberg, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
ATM Cash withdrawals
Source: SAMA, Al Rajhi Capital
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Economic Research July 2016
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It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. 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Disclosures Please refer to the important disclosures at the back of this report.
11
Economic Research July 2016
Disclaimer and additional disclosures for Economic Research Disclaimer This research document has been prepared by Al Rajhi Capital Company (“Al Rajhi Capital”) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital’s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction.
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Disclosures Please refer to the important disclosures at the back of this report.
12
Research Department ARC Research Team Tel 966 11 211 9370, [email protected]
Saudi Arabian economy
Saudi Arabian Economy The Kingdom’s Q1 2016 GDP grew at the slowest pace in three years as low oil prices led to slowdown in government spending and lower subsidies likely affecting consumer spending. However, even as Saudi Arabia PMI fell m-o-m in June, it stood at a robust 54.4, indicating growth in the non-oil sector. Foreign reserve assets rose on a monthly basis for the first in 16 months, which could possibly be due to new foreign loans raised by the government. POS transactions grew for the first time in four months in May 2016. Bank credit to the private sector rose year-on-year in May 2016, albeit at a slower pace compared to the previous month, while the deposits declined at a faster pace thereby pushing the loan-to-deposit ratio to 89.9%, its highest level since November 2008. Saudi Arabia’s crude oil exports fell to its lowest levels in six months in April 2016 despite high production level, as more oil was used to cater to domestic demand and lower demand from overseas refineries owing to seasonal maintenance. The Kingdom’s non-oil exports and imports declined at a faster pace in April 2016, on a yearly basis, as compared to the previous month. On the equity front, TASI edged up 0.8% on a monthly basis in June 2016, brushing aside the aftershocks from ‘Brexit’. Trading volume on the exchange was muted in June 2016 owing to Ramadan. Foreign Reserve Assets: Foreign reserve assets rose on a monthly basis in May 2016, the first increase in 16 months. On a yearly basis, the decline in foreign reserve assets eased slightly in May 2016 (-14.5% y-o-y) as compared to the previous month (-15.5% y-o-y). The monthly rise in the reserves could be due to the planned government bond issuance by the Kingdom to cover its budget deficit. Further, measures taken by the government to prioritize expenses also seems to have helped reduce reliance on foreign reserves to cover deficit. Key indicators: KSA’s crude oil production fell 1.1% y-o-y in June 2016. Brent September futures declined 1.2% m-o-m to reach US$ 49.71/ barrel at the end of June 2016. Money supply (M3) dropped 3.2% y-o-y in May 2016, while inflation rose by 4.1% y-o-y in May. Point of sale transactions (POS) grew 5.8% y-o-y, while ATM cash withdrawals rose by 1.1% y-o-y in May 2016. Crude price outlook: The US Energy Information Administration (EIA), in its June 2016 report, estimated Brent crude oil prices to average around US$43/barrel in 2016 and US$52/barrel in 2017. Table 1 Key macro indicators Variable
May-16
Apr-16
2015
2014
Inflation Rate (2007=100)
4.1%
4.2%
2.2%
2.7%
Average Oil Price (Arab Light) (US$/Barrel)
43.5
38.2
49.9
97.1
-3.2%
-1.5%
2.6%
11.9%
Money Supply (M3) Total Banking Sector Claims Interbank Interest Rate (3 Month) (BP) Repo Rate (BP) Reverse Repo Rate (BP) GDP Rate at Constant Prices (2010=100)
16
15.6
10.5
11.3
2.099
1.912
0.88
0.936
2.00
2.00
2.00
2.00
0.5
0.5
0.5
0.25
Q4 2015*
Q3 2015*
2015*
2014* 3.6%
1.8%
4.0%
3.5%
Current Account to GDP Ratio (current prices)
-15.8%
-6.6%
-8.3%
9.8%
Total Imports (fob) to GDP Ratio (current prices)
25.5%
23.5%
24.0%
21.0%
8.2%
7.7%
7.6%
7.7%
Non-oil Exports to GDP Ratio (current prices)
Source: SAMA, * Provisional
Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.
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Economic Research July 2016
Gross Domestic Product Q1 2016 GDP grew at the slowest pace in three years mainly due to slowdown in non-oil government and private sector
As per the latest GDP data released by CDSI, the Kingdom’s GDP for Q1 2016 grew by 1.54% y-o-y (Q1 2015: 3.27% y-o-y), recording its weakest pace in three years. The GDP growth rate slowed as low oil revenues led to slowdown in government spending and revision in subsidies, which increased costs for corporate as well as individuals. The oil sector grew 5.14% y-o-y in Q1 2016, versus a 0.21% y-o-y in Q1 2015, as the Kingdom raised crude oil production and exported more refined products. Meanwhile, the non-oil sector shrank 0.67% y-o-y in Q1 2016, as compared to a yearly rise of 5.66% in Q1 2015, owing to a sharp decline in the non-oil government and private sector. This is partly attributable to the high base effect of Q1 2015, when a 2-month salary bonus paid by the government and some corporate boosted spending.
Crude oil dynamics Crude oil export declined to 7.44 mbpd in April 2016, as compared to 7.54 mbpd in March 2016
As per the data released by Joint Organization Data Initiative, Saudi Arabia’s crude oil exports fell in April 2016 to the lowest levels in six months, despite higher production, as more oil was used for power generation on the domestic front. Lower demand from overseas refineries which were shut for maintenance in April and May also negatively impacted Kingdom’s crude oil exports. Crude exports declined to 7.44 million barrels per day (mbpd) in April 2016 vs. 7.54 mbpd in March 2016. Moreover, the Kingdom’s crude oil inventory from domestic as well as overseas storage facilities, declined to the lowest levels since August 2014. The inventory fell to 290.9 million barrels in April, versus 296.7 million barrels in March, owing to increased sales in the spot market.
Table 2 Crude Oil Exports
Country
Mar-16
Apr-16
y-o-y
m-o-m
Saudi Arabia
7.541
7.444
-3.8%
-1.3%
Russia
5.161
-
-
-
Iraq
3.809
3.364
9.3%
-11.7%
Canada
2.278
2.449
0.3%
7.5%
Kuwait
2.198
2.027
5.2%
-7.8%
Source: JODI Data, Al Rajhi Capital, Data For Russia April-2016 not released.
Figure 1 Gulf Crude oil exporters
Figure 2 Global Crude oil exporters Mbpd 6
Mbpd 9 8
5 7 6
4
5 3 4 3
2
2 1 1 0
0
Iraq
Kuwait
Iran
Saudi Arabia
Source: JODI Data, Al Rajhi Capital, Data for Iran not released since February 2016.
Disclosures Please refer to the important disclosures at the back of this report.
Russia
Canada
Norway
Mexico
Source: JODI Data, Al Rajhi Capital. Data for Russia April 2016 not released.
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Economic Research July 2016
Crude oil prices declined in June 2016
Crude oil prices (Brent September futures contract) dropped 1.2% m-o-m in June 2016, as compared to a monthly rise of 4.6% in the previous month. The monthly fall in crude oil prices can be attributed to the gain in the US dollar following Britain’s exit from the European Union and the restored crude oil production in Canada and Nigeria. Crude oil prices was also impacted by the rise in US oil rig count as well as easing concerns regarding supply outages in Norway. WTI (August futures contract) and Arab light declined 2.4% m-o-m and 0.2% m-o-m respectively in June 2016. The Kingdom’s crude oil production slipped 1.1% y-o-y in June 2016, versus a yearly rise of 0.1% in May 2016.
Figure 3 Saudi crude oil production trend
Figure 4 Crude oil prices trend
mbpd
120
10.8
12.0%
10.6
10.0%
10.4
8.0%
110 100 90
10.2
6.0%
10.0
4.0%
9.8 2.0%
9.6
0.0%
9.4 9.2
-2.0%
9.0
-4.0%
8.8
-6.0%
Saudi Crude oil production
80 70 60 50 40 30 20
Brent
YoY growth
Source: Bloomberg, Al Rajhi Capital
WTI
Arab Light
Source: Bloomberg, Al Rajhi Capital
Non-oil foreign trade Saudi Arabia’s non-oil exports and nonoil imports in April dropped by 18.4% and 27.2% respectively.
As per the latest foreign trade data released by CDSI, Saudi Arabia’s non-oil exports dropped 18.4% y-o-y in April 2016, as compared to annual decline of 9.1% and 7.4% in March and February, respectively. The fall in non-oil exports can be primarily attributed to decline in exports of chemical products (-35.5% y-o-y), which constitute 25.1% of total exports, coupled with a 9.1% y-o-y fall in plastics & rubbers, which accounted for 32.8% of total exports. Meanwhile, non-oil imports dropped -27.2% on a yearly basis in April 2016, versus 25.6% y-o-y fall in March. The non-oil imports were dragged down by ordinary metals (-38.1% y-o-y) and machinery & electrical (37.4% y-o-y), which together account for 32.5% of the total non-oil imports. Meanwhile, UAE maintained its position as the topmost non-oil export destination (17.0% of the total exports), while China was at the foremost position of the non-oil imports destinations, constituting 13.1% of the total imports, closely followed by USA, which accounted 13.0% of the total imports.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Table 3 Non-Oil Exports
Commodities (SAR mn)
Feb-16
Mar-16
Apr-16
Plastics & Rubbers
3,967
1,696
Chemical Products
3,333
3,699
Ordinary Metals
1,110
Transport Equipments Others Total
% y-o-y
% m-o-m
4,412
-9.1%
160.1%
3,381
-35.5%
-8.6%
1,008
1,183
-8.3%
17.4%
1,495
1,287
1,157
-14.0%
-10.1%
3,255
7,386
3,314
-11.8%
-55.1%
13,160
15,076
13,447
-18.4%
-10.8%
Source: GAS, Al Rajhi Capital
Figure 5 Components of non-oil exports
Figure 6 Export Destinations
7.5% 24.6% 32.8%
17.0%
4.5%
8.6%
5.9%
65.0% 8.8% 25.1%
Plastics & Rubbers
Chemical Products
Transport Equipments
Others
Ordinary Metals
China
Source: GAS, Al Rajhi Capital
Table 4
UAE
Singapore
India
Others
Source: GAS, Al Rajhi Capital
Non-Oil Imports
Commodities (SAR mn)
Feb-16
Mar-16
Apr-16
% y-o-y
% m-o-m
Machinery & Electricals
11,193
10,740
9,468
-37.4%
-11.8%
Transport Equipments
7,059
8,668
7,886
-18.0%
-9.0%
Ordinary Metals
3,582
4,380
3,798
-38.1%
-13.3%
Chemical Products
4,058
4,080
3,574
-14.4%
-12.4%
Others
14,793
16,176
16,044
-23.4%
-0.8%
Total
40,685
44,044
40,770
-27.2%
-7.4%
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Figure 7 Components of non-oil imports
Figure 8 Source countries
13.1%
23.2%
39.4%
13.0%
6.3%
61.2%
19.3% 6.4%
8.8%
9.3%
Machinery & Electricals
Transport Equipments
Chemical Products
Others
Ordinary Metals
Source: GAS, Al Rajhi Capital
China
USA
Germany
Japan
Others
Source: GAS, Al Rajhi Capital
Figure 9 Non-oil export trend (y-o-y)
Figure 10 Non-oil import trend (y-o-y)
YoY 80.0%
YoY 60.0% 50.0%
60.0%
40.0% 40.0%
30.0% 20.0%
20.0%
10.0% 0.0%
0.0% -10.0%
-20.0% -20.0% -30.0%
-40.0%
Non-oil Export
Non-oil Import
Source: GAS, Al Rajhi Capital
Source: GAS, Al Rajhi Capital
Monetary and credit indicators Money supply Money supply (M3) registered an annual decline in May 2016 for the fourth month in a row
The broader money supply (M3) dropped at a faster pace of 3.2% y-o-y in May 2016, standing at SAR1,762bn, versus a fall of 1.5% y-o-y in April 2016. The sharper decline in money supply (M3) is due to a larger annual drop in money supply M1 and the subdued annual growth in other quasi-money deposits. However, on a monthly basis, M3 declined at a slower pace of -0.4% in May as compared to a fall of 0.5% m-o-m in April 2016.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research July 2016
Figure 11 Money supply growth (y-o-y)
Figure 12 Deposits break-up
25.0%
SAR bn 1,200
20.0%
1,000
15.0% 800 10.0% 600 5.0% 400 0.0% 200
-5.0%
0
-10.0%
M1
M2
M3
Time and Saving Deposits
Source: SAMA, Al Rajhi Capital
Demand Deposits
Source: SAMA, Al Rajhi Capital
Credit and deposit growth The loan-to-deposit ratio in May 2016 rose to its highest level since November 2008
Total credit growth (banks’ claim on the private sector) eased slightly to 9.4% y-o-y in May 2016 (10.1% y-o-y in April 2016). Moreover, deposits dropped at a faster rate of 3.4% y-o-y in May 2016 as compared to a fall of 1.7% on a yearly basis in April. The drop in deposits is mainly due to fall in private sector deposits. On a monthly basis, credit given to the private sector rose by 0.7% in May 2016, whereas deposits declined by 0.5% m-o-m, leading to a rise in the loan-to-deposit ratio to 89.9% in May 2016, as compared to 88.7% in April 2016.
Figure 13 Credit and deposit growth
Figure 14 Loans to deposits
YoY 20.0%
92% 90% 88%
15.0%
86% 84%
10.0%
82% 80%
5.0%
78% 0.0%
76% 74%
-5.0%
72%
Deposits
Credit
Loans to Deposit ratio
Source: SAMA, Al Rajhi Capital
Source: SAMA, Al Rajhi Capital
Foreign reserve assets Foreign reserve assets recorded an improvement on a monthly basis for the first time in 16 months
Foreign reserve assets rose on a monthly basis for the first time in 16 months in May 2016. Foreign reserves advanced by 0.1% m-o-m in May, versus a monthly fall of 1.1% in April. Further, foreign deposits abroad rose by 7.4% m-o-m in May, as compared to a drop of 1.7% m-o-m in April. However, investments in foreign securities declined by 3.4% m-o-m in May, versus a fall of 0.8% on a monthly basis in April. The monthly
Disclosures Please refer to the important disclosures at the back of this report.
6
Economic Research July 2016
rise in foreign reserves could be possibly due to the debt issuance to finance the Kingdom’s budget deficit. Moreover, stable oil prices and measures taken by the Government to control spending has also seems to have helped the Kingdom to reduce its reliance on foreign reserves. On a yearly basis, the pace of decline of assets eased to 14.5% in May vs. yearly drop of 15.4% in April 2016. The Kingdom’s foreign reserves stood at SAR2,180bn (~US$581bn) at the end of May 2016. Figure 15 Foreign reserves
Figure 16 Major components of foreign assets
SAR bn
3,000
20.0%
SAR bn 2,500
15.0%
2,500
10.0% 2,000
2,000
5.0% 1,500
1,500
0.0% -5.0%
1,000
1,000
-10.0% 500
500
-15.0%
0
-20.0%
Foreign Reserves Assets
YoY
Source: SAMA, Al Rajhi Capital
0
Foreign Currency & Deposits Abroad
Investment in Foreign Assets
Source: SAMA, Al Rajhi Capital
Inflation dynamics Inflation (y-o-y) edged down slightly in May 2016 as compared to the previous month
The general index of cost of living rose by 4.1% y-o-y in May 2016, as compared to a rise of 4.2% y-o-y in April 2016. Inflation in the Kingdom edged down as compared to the previous month as the transport segment rose at a slower pace of 11.3% y-o-y in May as compared to a rise of 12.5% y-o-y in April, along with the slow rise of 0.3% y-oy in food & beverages segment versus a 0.8% y-o-y rise in April. However, inflation in housing, water, electricity & gas segment advanced to 7.7% y-o-y as compared to 7.5% y-o-y in the previous month, followed by furnishing, household equipment and maintenance segment which also rose at the same yearly pace of 2.7% as in April. On a monthly basis, the overall inflation registered the same reading in May 2016, as it was in the previous month.
Figure 17 Inflation trend (y-o-y)
Figure 18 Inflation drivers (y-o-y)
5.0%
14.0%
4.5%
12.0%
4.0%
10.0%
3.5%
8.0%
3.0%
6.0%
2.5%
4.0%
2.0%
2.0%
1.5%
0.0%
1.0%
-2.0%
0.5%
-4.0%
0.0%
General Index
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
Food And Beverages
Furnishings, Household
Transport
Housing, Water, Electricity, Gas
Source: GAS, Al Rajhi Capital
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Economic Research July 2016
Stock market indicators The benchmark index (TASI) advanced 0.8% m-o-m in June 2016, as compared to a monthly decline of 5.3% in May 2016. The overall index was driven by sectors such as Energy, Real Estate, Building & Constructions, Telecommunications and Cement which rose 18.6%, 10.1%, 4.1%, 1.7% and 1.5% respectively. Dar Al Arkan Real Estate Development Co. was the top performer on the index, registering a monthly return of 29.86% in June 2016.
Benchmark Index TASI gained 0.8% mo-m in June 2016
Figure 19 Tadawul index performance
Figure 20 TASI one year historic 12-month forward P/E chart
Index
Million
6650
400
16.0x
6600
350
15.0x
300
6550
14.0x
250
13.0x
6500 200
12.0x
6450 150 6400
100
6350
50
6300
0
11.0x 10.0x 9.0x 8.0x
Volume RHS Source: Bloomberg, Al Rajhi Capital, Data from 31
st
TASI May 2016 to 30th June 2016
Figure 21 Top 5 Sectors MoM
Source: Bloomberg, Al Rajhi Capital
Figure 22 Bottom 5 sectors MoM
20.0% 18.0% 16.0%
0.0%
14.0% 12.0%
-1.0%
10.0% 8.0%
6.0%
-2.0% -3.0%
4.0% 2.0%
-4.0%
0.0% -5.0% -6.0% -7.0%
Source: Tadawul, Al Rajhi Capital, MoM returns for June 2016
Disclosures Please refer to the important disclosures at the back of this report.
Source: Tadawul, Al Rajhi Capital, MoM returns for June 2016
8
Economic Research July 2016
Figure 5 Top 5 Gainers for the month of June Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Sectors
Dar Al Arkan Real Estate Development Co
29.9%
7.0
52.4
Real Estate Development
National Gas & Industrialization Co
23.7%
2.0
0.8
Energy & Utilities
Saudi Electricity Co
19.3%
81.5
4.8
Energy & Utilities
Arriyadh Development Co
14.9%
2.7
0.6
Real Estate Development
Saudi Real Estate Co
12.6%
2.6
0.9
Real Estate Development
Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Figure 6 Top 5 Losers for the month of June Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Saudi International Petrochemical Co
-8.2%
Saudi Research & Marketing Group Kingdom Holding Co National Shipping Co of Saudi Arabia/The
Sectors
4.8
0.3
Petrochemical
-7.5%
3.3
0.4
Media and Publishing
-6.9%
41.2
0.4
Multi Investment
-6.1%
15.2
1.6
Transport
2.2
0.6
Hotel & Tourism
Abdulmohsen Alhokair Group for Tourism and Development -6.1% Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Consumer spending indicators PMI edged down slightly in June, while POS witnessed improvement in May 2016
Saudi Arabia’s non-oil private sector (Emirates NBD PMI) remained in the expansionary phase to register a reading of 54.4 in June 2016, as compared to a reading of 54.8 in May 2016. The rise in economic activity in June can be primarily attributed to the robust growth in output and new orders. Point-of-sale (POS) transactions advanced 5.8% y-o-y in May 2016 as compared to a fall of 1.4% y-o-y in April. Further, ATM cash withdrawals were up 1.1% y-o-y in May, versus a yearly drop of 1.2% in April. The rise in POS and ATM withdrawals were in tandem with the trend ahead of Ramadan.
Disclosures Please refer to the important disclosures at the back of this report.
9
Economic Research July 2016
Figure 23 Point-of-sale transactions (POS) trend
Figure 24 ATM cash withdrawals trend 50%
SAR bn 80.0
50%
40%
70.0
40%
30%
60.0
30%
20%
50.0
20%
10%
40.0
10%
0%
30.0
0%
-10%
20.0
-10%
-20%
10.0
-20%
-30%
-
-30%
SAR bn 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 -
POS
ATM Cash withdrawals
YoY
Source: SAMA, Al Rajhi Capital
Figure 25 Emirates NBD Saudi PMI Index
YoY
Source: SAMA, Al Rajhi Capital
Figure 26 Consumer spending trend (POS and ATM cash Withdrawals)
64
SAR bn 80.0
62
70.0
60
60.0
58
50.0 40.0
56 30.0 54 20.0 52 50
10.0 -
48
POS
Source: Bloomberg, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
ATM Cash withdrawals
Source: SAMA, Al Rajhi Capital
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Economic Research July 2016
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Economic Research July 2016
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