Saudi Economic Report - September 2016 - Al Rajhi Capital
Economic Research September 2016
Research Department ARC Research Team Tel 966 11 211 9370, [email protected]
Saudi Arabian economy
Saudi Arabian Economy Brent crude October futures rose 8.1% m-o-m in August 2016, on expectations of an agreement over production freeze by the OPEC nations in their meeting scheduled at Algeria in September. Saudi oil production rose to 10.69mbpd in August 2016, as compared to 10.66mbpd (revised higher from 10.43mbpd) in July 2016. Saudi Arabia’s PMI advanced to a one year high of 56.6 in August 2016 from 56.0 in July 2016. Foreign reserve assets dropped 1.2% m-o-m in July 2016, registering a slower decline from a 1.9% monthly drop in June. POS transactions and ATM withdrawals registered a sharp drop in July. POS transactions declined 15.7% y-o-y in July (+2.7% y-o-y in June), while ATM withdrawals fell 19.4% y-o-y (+10.7% y-o-y in June). Banks’ claim on the private sector rose at a slower pace in July (7.4% y-o-y) as compared to June (8.1% y-o-y). Meanwhile, deposits continued to fall in July (3.1% y-o-y), pushing the loan-to-deposit ratio to 90.5%, beyond the SAMA’s 90% cap. Fitch maintains KSA’s rating at AA- with a “negative” outlook, owing to the Kingdom’s weak balance sheet, due to low oil prices, and the unfavourable impacts of the austerity measures. On the equity front, TASI shed 3.5% m-o-m in August, further down from the monthly drop of 3.0% in July 2016. Key indicators: KSA’s crude oil production increased 1.8% y-o-y in August 2016. Brent October futures advanced 8.1% m-o-m to reach US$ 47.04 / barrel at the end of August 2016. Broader money supply (M3) dropped 3.0% y-o-y in July 2016, while inflation grew by 3.8% y-o-y in July. Point of sale transactions (POS) logged its first double digit drop since February 2016, by declining 15.7% y-o-y in July 2016, while ATM cash withdrawals fell sharply by 19.4% y-o-y in the same month. Foreign Reserve Assets: Foreign reserve assets declined, for the 18th consecutive month to stand at SAR2113bn in July 2016, (-15.7% y-o-y), sharper than the yearly drop in June (-15.2% y-o-y) and recorded its lowest level since February 2012. On a monthly basis, the assets declined at a slower pace of 1.2% in July, vis-à-vis the fall of 1.9% m-o-m in June. It is expected that the government will issue its first international bond in October 2016. Crude price outlook: The US Energy Information Administration (EIA), in its August 2016 report, estimated Brent crude oil prices to average around US$42/barrel in 2016 and US$52/barrel in 2017. Table 1 Key macro indicators Variable
Jul-16
Jun-16
2015
2014
Inflation Rate (2007=100)
3.8%
4.1%
2.2%
2.7%
Average Oil Price (Arab Light) (US$/Barrel)
43.1
46.3
49.9
97.1
-3.0%
-2.6%
2.6%
11.9%
Money Supply (M3) Total Banking Sector Claims
15.4
15.3
10.5
11.3
Interbank Interest Rate (3 Month) (BP)
2.226
2.208
0.88
0.936
Repo Rate (BP)
2.00
2.00
2.00
2.00
0.5
0.5
0.5
0.25
Q1 2016*
Q4 2015*
2015*
2014* 3.6%
Reverse Repo Rate (BP) GDP Rate at Constant Prices (2010=100)
1.5%
1.8%
3.5%
Current Account to GDP Ratio (current prices)
-11.9%
-15.8%
-8.3%
9.8%
Total Imports (fob) to GDP Ratio (current prices)
21.5%
25.5%
24.0%
21.0%
7.2%
8.2%
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 September 2016
Crude oil dynamics Crude oil prices rose in August 2016 on hopes of production freeze by OPEC nations
Crude oil prices (Brent October futures contract) advanced 8.1% m-o-m in August 2016, registering its highest monthly rise since April 2016, versus the decline of 13.2% m-o-m in July 2016. The rise in crude oil prices in August were fueled by speculations that OPEC nations may agree on production caps, in order to stabilize prices, at their September meeting. Saudi Arabia and Russia commented on the need for production freeze. However, the expectations of an output cap fizzled out by the end of the month, as a report suggested that Iran was planning to boost its output by 2016 end. Meanwhile, the EIA has reported a rise in US crude oil inventories for the second consecutive week, thereby logging a third weekly build up in August. WTI (October futures contract) and Arab light witnessed a monthly rise of 5.6% and 7.2%, respectively in August 2016. The Kingdom’s crude oil production advanced 1.8% y-o-y in August 2016, up from the rise of 0.9% y-o-y in July 2016.
Figure 1 Saudi crude oil production trend
Figure 2 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
YoY growth
Source: Bloomberg, Al Rajhi Capital
Brent
WTI
Arab Light
Source: Bloomberg, Al Rajhi Capital
Non-oil foreign trade Saudi Arabia’s non-oil exports and nonoil imports declined in June 2016
According to the latest foreign trade data released by the General Authority for Statistics, Saudi Arabia’s non-oil exports fell 10.0% y-o-y in June 2016, vis-à-vis the annual declines of 0.4% and 18.4% in May and April, respectively. The drop in the non-oil exports is due to the decline in exports of chemical products (-23.6% y-o-y), which account for 28.8% of the total exports, along with a 10.3% annual fall in plastics & rubbers exports, which constitute 30.8% of the total exports. Meanwhile, the Kingdom’s non-oil imports declined 23.9% y-o-y in June 2016, as compared to the yearly drop of 20.3% in May. The non-oil imports were further pulled down by a drop in machinery & electrical (-35.0% y-o-y) and ordinary metals (-24.3% y-o-y), which together represent 33.6% of the total non-oil imports. Meanwhile, the UAE remained the topmost non-oil export destination (16.4% of the total exports), while China was at the foremost position of the non-oil imports destinations, accounting for 15.6% of the total imports, followed closely by the US, which constituted 15.5% of the Kingdom’s total imports.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Table 2 Non-Oil Exports
Commodities (SAR mn)
Apr-16
May-16
Jun-16
% y-o-y
% m-o-m
Plastics & Rubbers
4,412
4,785
4,393
-10.3%
-8.2%
Chemical Products
3,381
3,997
4,113
-23.6%
2.9%
Ordinary Metals
1,183
1,343
1,116
-19.2%
-16.9%
Transport Equipments
1,157
1,397
1,342
39.4%
-3.9%
Others
3,314
4,159
3,297
2.3%
-20.7%
13,447
15,681
14,261
-10.0%
-9.1%
Total Source: GAS, Al Rajhi Capital
Figure 3 Components of non-oil exports
Figure 4 Export Destinations
10.5% 23.1% 30.8%
16.4%
9.4%
4.8% 62.0% 6.4%
7.8% 28.8%
Plastics & Rubbers
Chemical Products
Transport Equipments
Others
Ordinary Metals
China
Source: GAS, Al Rajhi Capital
Table 3
UAE
Singapore
India
Others
Source: GAS, Al Rajhi Capital
Non-Oil Imports
Commodities (SAR mn)
Apr-16
May-16
Jun-16
% y-o-y
% m-o-m
Machinery & Electricals
9,468
10,525
10,448
-35.0%
-0.7%
Transport Equipments
7,886
8,716
9,104
0.2%
4.5%
Ordinary Metals
3,798
4,114
4,022
-24.3%
-2.2%
Chemical Products
3,574
4,030
4,086
-18.0%
1.4%
Others
16,044
18,119
15,346
-27.1%
-15.3%
Total
40,770
45,504
43,006
-23.9%
-5.5%
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Figure 5 Components of non-oil imports
Figure 6 Source countries
15.6%
24.3% 35.7%
15.5%
52.2%
21.2%
5.8%
9.5%
5.5%
9.4% 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 7 Non-oil export trend (y-o-y)
Figure 8 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% -40.0%
-30.0%
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) declined for the sixth straight month
The broader money supply (M3) dropped 3.0% y-o-y in July 2016, sharper than the decline of 2.6% y-o-y in June and stood at SAR 1,753bn. The decline in demand deposits led to the fall in the broader money supply. Meanwhile, on a monthly basis, M3 declined 1.1% in July 2016, versus a rise of 0.7% m-o-m in June 2016.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Figure 9 Money supply growth (y-o-y)
Figure 10 Deposits break-up SAR bn 1,200
25.0% 20.0%
1,000
15.0%
800
10.0%
600
5.0% 0.0%
400
-5.0%
200
-10.0%
0
-15.0%
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 surpassed the 90% mark twice in a row in July 2016
Total credit growth (banks’ claim on the private sector) grew by 7.4% y-o-y in July 2016, down from the yearly rise of 8.1% y-o-y in June 2016. Meanwhile, the deposits declined at a slower pace of 3.1% y-o-y in July 2016, as compared to a 3.3% y-o-y fall in June. On a monthly basis, credit allocated to the private sector declined 0.3% in July 2016, versus a 0.4% rise in June. The deposits retreated into negative territory and stood at -0.8% m-o-m in July 2016, after edging up 0.1% in June 2016. The loanto-deposit ratio logged at 90.5% in July 2016, inching higher from 90.2% in June 2016.
Figure 11 Credit and deposit growth
Figure 12 Loans to deposits
YoY 20.0%
92% 90% 88%
15.0%
86% 10.0%
84% 82%
5.0%
80% 78%
0.0%
76% 74%
-5.0%
72%
Deposits
Credit
Loans to Deposit ratio
Source: SAMA, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
Source: SAMA, Al Rajhi Capital
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Economic Research September 2016
Foreign reserve assets Kingdom’s foreign reserve assets th declined for the 18 month in a row in July 2016
The foreign reserve assets declined 15.7% y-o-y in July 2016 to stand at SAR2,113bn (~US$563bn), lower than the yearly drop of 15.2%. The assets were at the highest level of SAR2797bn (~US$746bn) in August 2014, but low oil prices have prompted the Kingdom to utilize its foreign reserve assets in order to plug its budget deficit, thereby reducing nearly a quarter of its assets since August 2014. Further, the Kingdom is expected to issue its first international bond of US$10bn or more in October 2016. On a monthly basis, foreign reserves dropped at a slower pace of 1.2% in July, as compared to a fall of 1.9% m-o-m in June. Meanwhile, foreign deposits abroad declined 4.5% m-o-m in July, lower than the monthly drop of 3.1% in June. However, investments in foreign securities advanced 0.7% m-o-m in July, after registering a fall for 10 consecutive months.
Figure 13 Foreign reserves
Figure 14 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 The rise in the general cost of living in KSA slowed down on a yearly basis in July 2016
Inflation in the Kingdom rose by 3.8% y-o-y in July, down from the yearly rise of 4.1% in June 2016. The fall in the general cost of living can be attributed to the decline in the food & beverages segment to -0.1% y-o-y in July, as compared to a rise of 0.1% yo-y in June coupled with a slower rise in furnishing, household equipment and maintenance segment by 2.0% y-o-y in July, versus 2.7% y-o-y in the previous month. Further, the transport segment slowed down to a rise of 9.4% y-o-y in July, from the yearly gain of 10.2% in June 2016. However, inflation in the housing, water, electricity & gas segment witnessed a faster growth rate of 7.5% y-o-y in July, up from 7.2% y-o-y in June 2016. On a monthly basis, the overall inflation grew by 0.1% in July, versus a monthly rise of 0.3% in June 2016.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Figure 15 Inflation trend (y-o-y)
Figure 16 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
Food And Beverages
Furnishings, Household
Transport
Housing, Water, Electricity, Gas
Source: GAS, Al Rajhi Capital
Stock market indicators The benchmark index (TASI) dropped 3.5% m-o-m in August 2016, further down from the monthly fall of 3.0% in July. Twelve of the fifteen sectors in the index declined in August, major declining sectors being Media, Insurance, Cement, Building & Construction and Transport which dropped 17.4%, 9.4%, 8.0%, 7.2% and 7.0%, respectively. Saudi Arabian Fertilizer Co. was the topmost performer on the index, delivering a return of 10.15% m-o-m in August 2016.
TASI declined further in August 2016
Figure 17 Tadawul index performance
Figure 18 TASI one year historic 12-month forward P/E chart
Index
Million
6500 6400
300
15.0x
250
14.0x
6300 200
6200
13.0x 12.0x
6100
150 11.0x
6000
100 10.0x
5900 50
5800
9.0x
5700
0 8.0x
Volume RHS
TASI st
Source: Bloomberg, Al Rajhi Capital, Data from 31 July 2016 to 31st August 2016
Disclosures Please refer to the important disclosures at the back of this report.
Source: Bloomberg, Al Rajhi Capital
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Economic Research September 2016
Figure 19 Top 5 Sectors MoM
Figure 20 Bottom 5 sectors MoM
3.0% 2.0% 1.0%
0.0%
0.0%
-2.0%
-1.0%
-4.0%
-2.0%
-6.0%
-3.0%
-8.0% -10.0%
-4.0%
-12.0%
-5.0%
-14.0% -16.0% -18.0% -20.0%
Source: Tadawul, Al Rajhi Capital, MoM returns for August 2016
Source: Tadawul, Al Rajhi Capital, MoM returns for August 2016
Table 4 Top 5 Gainers for the month of August Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Sectors
Saudi Arabian Fertilizer Co
10.1%
27.8
0.2
Petrochemical Industries
Saudi Industrial Services Co
10.1%
1.0
0.7
Multi-Investment
Saudi Public Transport Co
8.5%
1.8
0.7
Transport
Saudi Real Estate Co
5.9%
2.5
0.3
Real Estate Development
Jarir Marketing Co
4.5%
9.5
0.1
Retail
Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Table 5 Top 5 Losers for the month of August Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Sectors
Saudi Marketing Co
-24.2%
1.3
0.3
Retail
Saudi Research & Marketing Group
-21.3%
2.4
0.3
Media and Publishing
Al Hassan Ghazi Ibrahim Shaker Co
-16.2%
1.1
0.7
Industrial Investment
Saudi Co For Hardware LLC
-15.5%
1.8
0.0
Retail
Umm Al-Qura Cement Co
-14.7%
1.0
0.1
Cement
Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Consumer spending indicators POS transactions and ATM withdrawals witnessed sharp declines in July 2016
The Saudi Arabia’s non-oil private sector (Emirates NBD PMI) registered its highest reading in one year, by logging 56.6 in August 2016, as compared to 56.0 in July. The rise in the PMI was due to an increase in output and new orders. Point-of-sale (POS) transactions registered its first double-digit drop since February 2016 by logging a 15.7% yearly drop in July 2016, vis-à-vis a rise of 2.7% y-o-y in June. Meanwhile, ATM cash withdrawals declined sharply from +10.7% y-o-y in June 2016 to -19.4% in July.
Figure 21 Point-of-sale transactions (POS) trend
Figure 22 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
YoY
Source: SAMA, Al Rajhi Capital
Figure 23 Emirates NBD Saudi PMI Index
ATM Cash withdrawals
YoY
Source: SAMA, Al Rajhi Capital
Figure 24 Consumer spending trend (POS and ATM cash Withdrawals) SAR bn 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -
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 September 2016
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Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
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Disclosures Please refer to the important disclosures at the back of this report.
11
Research Department ARC Research Team Tel 966 11 211 9370, [email protected]
Saudi Arabian economy
Saudi Arabian Economy Brent crude October futures rose 8.1% m-o-m in August 2016, on expectations of an agreement over production freeze by the OPEC nations in their meeting scheduled at Algeria in September. Saudi oil production rose to 10.69mbpd in August 2016, as compared to 10.66mbpd (revised higher from 10.43mbpd) in July 2016. Saudi Arabia’s PMI advanced to a one year high of 56.6 in August 2016 from 56.0 in July 2016. Foreign reserve assets dropped 1.2% m-o-m in July 2016, registering a slower decline from a 1.9% monthly drop in June. POS transactions and ATM withdrawals registered a sharp drop in July. POS transactions declined 15.7% y-o-y in July (+2.7% y-o-y in June), while ATM withdrawals fell 19.4% y-o-y (+10.7% y-o-y in June). Banks’ claim on the private sector rose at a slower pace in July (7.4% y-o-y) as compared to June (8.1% y-o-y). Meanwhile, deposits continued to fall in July (3.1% y-o-y), pushing the loan-to-deposit ratio to 90.5%, beyond the SAMA’s 90% cap. Fitch maintains KSA’s rating at AA- with a “negative” outlook, owing to the Kingdom’s weak balance sheet, due to low oil prices, and the unfavourable impacts of the austerity measures. On the equity front, TASI shed 3.5% m-o-m in August, further down from the monthly drop of 3.0% in July 2016. Key indicators: KSA’s crude oil production increased 1.8% y-o-y in August 2016. Brent October futures advanced 8.1% m-o-m to reach US$ 47.04 / barrel at the end of August 2016. Broader money supply (M3) dropped 3.0% y-o-y in July 2016, while inflation grew by 3.8% y-o-y in July. Point of sale transactions (POS) logged its first double digit drop since February 2016, by declining 15.7% y-o-y in July 2016, while ATM cash withdrawals fell sharply by 19.4% y-o-y in the same month. Foreign Reserve Assets: Foreign reserve assets declined, for the 18th consecutive month to stand at SAR2113bn in July 2016, (-15.7% y-o-y), sharper than the yearly drop in June (-15.2% y-o-y) and recorded its lowest level since February 2012. On a monthly basis, the assets declined at a slower pace of 1.2% in July, vis-à-vis the fall of 1.9% m-o-m in June. It is expected that the government will issue its first international bond in October 2016. Crude price outlook: The US Energy Information Administration (EIA), in its August 2016 report, estimated Brent crude oil prices to average around US$42/barrel in 2016 and US$52/barrel in 2017. Table 1 Key macro indicators Variable
Jul-16
Jun-16
2015
2014
Inflation Rate (2007=100)
3.8%
4.1%
2.2%
2.7%
Average Oil Price (Arab Light) (US$/Barrel)
43.1
46.3
49.9
97.1
-3.0%
-2.6%
2.6%
11.9%
Money Supply (M3) Total Banking Sector Claims
15.4
15.3
10.5
11.3
Interbank Interest Rate (3 Month) (BP)
2.226
2.208
0.88
0.936
Repo Rate (BP)
2.00
2.00
2.00
2.00
0.5
0.5
0.5
0.25
Q1 2016*
Q4 2015*
2015*
2014* 3.6%
Reverse Repo Rate (BP) GDP Rate at Constant Prices (2010=100)
1.5%
1.8%
3.5%
Current Account to GDP Ratio (current prices)
-11.9%
-15.8%
-8.3%
9.8%
Total Imports (fob) to GDP Ratio (current prices)
21.5%
25.5%
24.0%
21.0%
7.2%
8.2%
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 September 2016
Crude oil dynamics Crude oil prices rose in August 2016 on hopes of production freeze by OPEC nations
Crude oil prices (Brent October futures contract) advanced 8.1% m-o-m in August 2016, registering its highest monthly rise since April 2016, versus the decline of 13.2% m-o-m in July 2016. The rise in crude oil prices in August were fueled by speculations that OPEC nations may agree on production caps, in order to stabilize prices, at their September meeting. Saudi Arabia and Russia commented on the need for production freeze. However, the expectations of an output cap fizzled out by the end of the month, as a report suggested that Iran was planning to boost its output by 2016 end. Meanwhile, the EIA has reported a rise in US crude oil inventories for the second consecutive week, thereby logging a third weekly build up in August. WTI (October futures contract) and Arab light witnessed a monthly rise of 5.6% and 7.2%, respectively in August 2016. The Kingdom’s crude oil production advanced 1.8% y-o-y in August 2016, up from the rise of 0.9% y-o-y in July 2016.
Figure 1 Saudi crude oil production trend
Figure 2 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
YoY growth
Source: Bloomberg, Al Rajhi Capital
Brent
WTI
Arab Light
Source: Bloomberg, Al Rajhi Capital
Non-oil foreign trade Saudi Arabia’s non-oil exports and nonoil imports declined in June 2016
According to the latest foreign trade data released by the General Authority for Statistics, Saudi Arabia’s non-oil exports fell 10.0% y-o-y in June 2016, vis-à-vis the annual declines of 0.4% and 18.4% in May and April, respectively. The drop in the non-oil exports is due to the decline in exports of chemical products (-23.6% y-o-y), which account for 28.8% of the total exports, along with a 10.3% annual fall in plastics & rubbers exports, which constitute 30.8% of the total exports. Meanwhile, the Kingdom’s non-oil imports declined 23.9% y-o-y in June 2016, as compared to the yearly drop of 20.3% in May. The non-oil imports were further pulled down by a drop in machinery & electrical (-35.0% y-o-y) and ordinary metals (-24.3% y-o-y), which together represent 33.6% of the total non-oil imports. Meanwhile, the UAE remained the topmost non-oil export destination (16.4% of the total exports), while China was at the foremost position of the non-oil imports destinations, accounting for 15.6% of the total imports, followed closely by the US, which constituted 15.5% of the Kingdom’s total imports.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Table 2 Non-Oil Exports
Commodities (SAR mn)
Apr-16
May-16
Jun-16
% y-o-y
% m-o-m
Plastics & Rubbers
4,412
4,785
4,393
-10.3%
-8.2%
Chemical Products
3,381
3,997
4,113
-23.6%
2.9%
Ordinary Metals
1,183
1,343
1,116
-19.2%
-16.9%
Transport Equipments
1,157
1,397
1,342
39.4%
-3.9%
Others
3,314
4,159
3,297
2.3%
-20.7%
13,447
15,681
14,261
-10.0%
-9.1%
Total Source: GAS, Al Rajhi Capital
Figure 3 Components of non-oil exports
Figure 4 Export Destinations
10.5% 23.1% 30.8%
16.4%
9.4%
4.8% 62.0% 6.4%
7.8% 28.8%
Plastics & Rubbers
Chemical Products
Transport Equipments
Others
Ordinary Metals
China
Source: GAS, Al Rajhi Capital
Table 3
UAE
Singapore
India
Others
Source: GAS, Al Rajhi Capital
Non-Oil Imports
Commodities (SAR mn)
Apr-16
May-16
Jun-16
% y-o-y
% m-o-m
Machinery & Electricals
9,468
10,525
10,448
-35.0%
-0.7%
Transport Equipments
7,886
8,716
9,104
0.2%
4.5%
Ordinary Metals
3,798
4,114
4,022
-24.3%
-2.2%
Chemical Products
3,574
4,030
4,086
-18.0%
1.4%
Others
16,044
18,119
15,346
-27.1%
-15.3%
Total
40,770
45,504
43,006
-23.9%
-5.5%
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Figure 5 Components of non-oil imports
Figure 6 Source countries
15.6%
24.3% 35.7%
15.5%
52.2%
21.2%
5.8%
9.5%
5.5%
9.4% 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 7 Non-oil export trend (y-o-y)
Figure 8 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% -40.0%
-30.0%
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) declined for the sixth straight month
The broader money supply (M3) dropped 3.0% y-o-y in July 2016, sharper than the decline of 2.6% y-o-y in June and stood at SAR 1,753bn. The decline in demand deposits led to the fall in the broader money supply. Meanwhile, on a monthly basis, M3 declined 1.1% in July 2016, versus a rise of 0.7% m-o-m in June 2016.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Figure 9 Money supply growth (y-o-y)
Figure 10 Deposits break-up SAR bn 1,200
25.0% 20.0%
1,000
15.0%
800
10.0%
600
5.0% 0.0%
400
-5.0%
200
-10.0%
0
-15.0%
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 surpassed the 90% mark twice in a row in July 2016
Total credit growth (banks’ claim on the private sector) grew by 7.4% y-o-y in July 2016, down from the yearly rise of 8.1% y-o-y in June 2016. Meanwhile, the deposits declined at a slower pace of 3.1% y-o-y in July 2016, as compared to a 3.3% y-o-y fall in June. On a monthly basis, credit allocated to the private sector declined 0.3% in July 2016, versus a 0.4% rise in June. The deposits retreated into negative territory and stood at -0.8% m-o-m in July 2016, after edging up 0.1% in June 2016. The loanto-deposit ratio logged at 90.5% in July 2016, inching higher from 90.2% in June 2016.
Figure 11 Credit and deposit growth
Figure 12 Loans to deposits
YoY 20.0%
92% 90% 88%
15.0%
86% 10.0%
84% 82%
5.0%
80% 78%
0.0%
76% 74%
-5.0%
72%
Deposits
Credit
Loans to Deposit ratio
Source: SAMA, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
Source: SAMA, Al Rajhi Capital
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Economic Research September 2016
Foreign reserve assets Kingdom’s foreign reserve assets th declined for the 18 month in a row in July 2016
The foreign reserve assets declined 15.7% y-o-y in July 2016 to stand at SAR2,113bn (~US$563bn), lower than the yearly drop of 15.2%. The assets were at the highest level of SAR2797bn (~US$746bn) in August 2014, but low oil prices have prompted the Kingdom to utilize its foreign reserve assets in order to plug its budget deficit, thereby reducing nearly a quarter of its assets since August 2014. Further, the Kingdom is expected to issue its first international bond of US$10bn or more in October 2016. On a monthly basis, foreign reserves dropped at a slower pace of 1.2% in July, as compared to a fall of 1.9% m-o-m in June. Meanwhile, foreign deposits abroad declined 4.5% m-o-m in July, lower than the monthly drop of 3.1% in June. However, investments in foreign securities advanced 0.7% m-o-m in July, after registering a fall for 10 consecutive months.
Figure 13 Foreign reserves
Figure 14 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 The rise in the general cost of living in KSA slowed down on a yearly basis in July 2016
Inflation in the Kingdom rose by 3.8% y-o-y in July, down from the yearly rise of 4.1% in June 2016. The fall in the general cost of living can be attributed to the decline in the food & beverages segment to -0.1% y-o-y in July, as compared to a rise of 0.1% yo-y in June coupled with a slower rise in furnishing, household equipment and maintenance segment by 2.0% y-o-y in July, versus 2.7% y-o-y in the previous month. Further, the transport segment slowed down to a rise of 9.4% y-o-y in July, from the yearly gain of 10.2% in June 2016. However, inflation in the housing, water, electricity & gas segment witnessed a faster growth rate of 7.5% y-o-y in July, up from 7.2% y-o-y in June 2016. On a monthly basis, the overall inflation grew by 0.1% in July, versus a monthly rise of 0.3% in June 2016.
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Figure 15 Inflation trend (y-o-y)
Figure 16 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
Food And Beverages
Furnishings, Household
Transport
Housing, Water, Electricity, Gas
Source: GAS, Al Rajhi Capital
Stock market indicators The benchmark index (TASI) dropped 3.5% m-o-m in August 2016, further down from the monthly fall of 3.0% in July. Twelve of the fifteen sectors in the index declined in August, major declining sectors being Media, Insurance, Cement, Building & Construction and Transport which dropped 17.4%, 9.4%, 8.0%, 7.2% and 7.0%, respectively. Saudi Arabian Fertilizer Co. was the topmost performer on the index, delivering a return of 10.15% m-o-m in August 2016.
TASI declined further in August 2016
Figure 17 Tadawul index performance
Figure 18 TASI one year historic 12-month forward P/E chart
Index
Million
6500 6400
300
15.0x
250
14.0x
6300 200
6200
13.0x 12.0x
6100
150 11.0x
6000
100 10.0x
5900 50
5800
9.0x
5700
0 8.0x
Volume RHS
TASI st
Source: Bloomberg, Al Rajhi Capital, Data from 31 July 2016 to 31st August 2016
Disclosures Please refer to the important disclosures at the back of this report.
Source: Bloomberg, Al Rajhi Capital
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Economic Research September 2016
Figure 19 Top 5 Sectors MoM
Figure 20 Bottom 5 sectors MoM
3.0% 2.0% 1.0%
0.0%
0.0%
-2.0%
-1.0%
-4.0%
-2.0%
-6.0%
-3.0%
-8.0% -10.0%
-4.0%
-12.0%
-5.0%
-14.0% -16.0% -18.0% -20.0%
Source: Tadawul, Al Rajhi Capital, MoM returns for August 2016
Source: Tadawul, Al Rajhi Capital, MoM returns for August 2016
Table 4 Top 5 Gainers for the month of August Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Sectors
Saudi Arabian Fertilizer Co
10.1%
27.8
0.2
Petrochemical Industries
Saudi Industrial Services Co
10.1%
1.0
0.7
Multi-Investment
Saudi Public Transport Co
8.5%
1.8
0.7
Transport
Saudi Real Estate Co
5.9%
2.5
0.3
Real Estate Development
Jarir Marketing Co
4.5%
9.5
0.1
Retail
Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Table 5 Top 5 Losers for the month of August Name
Monthly Return Market cap (SAR bn) Avg volume (mn)
Sectors
Saudi Marketing Co
-24.2%
1.3
0.3
Retail
Saudi Research & Marketing Group
-21.3%
2.4
0.3
Media and Publishing
Al Hassan Ghazi Ibrahim Shaker Co
-16.2%
1.1
0.7
Industrial Investment
Saudi Co For Hardware LLC
-15.5%
1.8
0.0
Retail
Umm Al-Qura Cement Co
-14.7%
1.0
0.1
Cement
Source: Bloomberg, Al Rajhi Capital, Companies with market cap more than SAR 1bn
Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 2016
Consumer spending indicators POS transactions and ATM withdrawals witnessed sharp declines in July 2016
The Saudi Arabia’s non-oil private sector (Emirates NBD PMI) registered its highest reading in one year, by logging 56.6 in August 2016, as compared to 56.0 in July. The rise in the PMI was due to an increase in output and new orders. Point-of-sale (POS) transactions registered its first double-digit drop since February 2016 by logging a 15.7% yearly drop in July 2016, vis-à-vis a rise of 2.7% y-o-y in June. Meanwhile, ATM cash withdrawals declined sharply from +10.7% y-o-y in June 2016 to -19.4% in July.
Figure 21 Point-of-sale transactions (POS) trend
Figure 22 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
YoY
Source: SAMA, Al Rajhi Capital
Figure 23 Emirates NBD Saudi PMI Index
ATM Cash withdrawals
YoY
Source: SAMA, Al Rajhi Capital
Figure 24 Consumer spending trend (POS and ATM cash Withdrawals) SAR bn 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 -
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 September 2016
IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 20 Broad Street 26th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through Al Rajhi. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor. The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account.
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Disclosures Please refer to the important disclosures at the back of this report.
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Economic Research September 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 speci fic 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.
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