Target mkt cap
Economic Research Monthly Economic Report October 2017
Research Department ARC Research Team Tel. +966 11 211 9449, [email protected]
Saudi Arabian Economy
Saudi economy: Consumption picks up Saudi Arabia’s economy contracted for the second straight quarter in Q2 2017, as GDP declined 1% y-o-y in Q2 2017, following a 0.5% y-o-y fall in Q1 2017. The decline in the GDP is primarily due to lower oil production resulting from the agreement with OPEC and non-OPEC members to limit supply. The non-oil sector grew at a moderate pace (+0.6% y-o-y), flat compared to the previous quarter, as government sector growth (+1% y-o-y) improved, offsetting the slowdown in private sector (+0.4%). Meanwhile, monthly data for August indicated strong consumer spending, with POS transactions (+10.3% y-o-y) and ATM withdrawals (+4% y-o-y) rising at healthy pace. Credit to the private sector recovered (+0.4% m-o-m) in August, after declining over the previous two months, whereas deposits were down sequentially for the second consecutive month (-0.6% m-o-m). SAMA’s reserve assets continued to decline in August (-1.4% m-o-m), which can be partially attributed to the country’s increased investment activities. However, government reserves with SAMA were unchanged in August from the previous month. The recently raised US$ 12.5bn via the third international bond sale should slowdown the pace of drawdown of the reserve assets. Moody’s has assigned A1 rating to the Saudi Arabian global notes issued under the government’s medium-term notes (MTN) program, indicating high level of fiscal and economic strength. Nevertheless, quarterly labor data showed that unemployment continued to rise, albeit at a slower pace, reaching 12.8% among Saudi nationals by Q2 2017, from 12.7% in the previous quarter. On the positive side, average monthly wages improved marginally for Saudi nationals (+0.3% q-o-q) from the previous quarter, while overall average monthly wages rose more sharply (+4% q-o-q). Meanwhile, the government took a major step towards achieving one of its targets under the “Vision 2030”, allowing women to drive after decades of ban. The move will make it easier for women to find employment and increase their participation in the labor force, thereby boosting household income and spending. The government is expected to continue the reforms and is likely to announce another round of hike in transport fuel and utility prices in the coming months. Saudi Arabia raised US$12.5bn from its third international bond sale. The 5 year bond was offered at 110 bps over the US treasuries, the 10 year at 145 bps and the 30 year at 180 bps. The bond sale attracted bids of US$ 40bn. Q2 2017 GDP contracted 1.0% y-o-y, compared to 0.5% decline last quarter, dragged down by the oil sector. The oil sector fell 1.8% y-o-y in Q2 2017, versus the fall of 2.3% in Q1 2017, while the non-oil sector grew by 0.6% y-o-y in Q2 2017, nearly same as the previous quarter. SAMA revised mortgage rules in order to provide an impetus to the housing sector. The central bank announced an exemption from administrative fees for mortgage holders in case of switching between fixed and floating rate loans. Further, mortgage holders can move to new lenders without paying an additional charge. Under the NTP 2020, the government targets to increase the percentage of Saudi family homeowners to 52% by 2020 from 47%.
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.
Economic Research Monthly Economic Report October 2017
Point-of-sale (POS) transaction indicated strong consumer spending activity, recording a 10.3% y-o-y rise in August 2017, as against the rise of 12.8% y-o-y in July. Meanwhile, the ATM transactions grew by 4.0% y-o-y in August 2017 versus the rise of 2.4% y-o-y in July 2017. Q2 2017 labor data indicated that employment of Saudi nationals increased by 13.5k during the quarter. However, as ~28.9k people were added to the Saudi labor force, Saudi unemployment rose slightly to 12.8% in Q2 from 12.7% in the previous quarter. Even while unemployment increased, average monthly wages of Saudi nationals rose marginally on a sequential basis (+0.3% q-o-q), though the figure was lower~5% y-o-y. Despite the increase in Saudi employment, overall employment was down by ~48k in Q2. Total labor force declined ~132.5k, indicating that a lot of expats went out of the labor force. Overall unemployment increased to 6% from 5.8% in the previous quarter. Overall average monthly wages rose 4% m-o-m, but was still down 3% y-o-y. Kingdom’s non-oil exports witnessed a yearly rise of 28.0% in July 2017, after recording a fall for two straight months, while the non-oil imports, too, grew by 16.0% y-o-y in July 2017, compared to the drop of 29.0% y-o-y in the previous month. Banking sector profits continued to stood at SAR3,964 mn in August 2017, almost flat mo-m, but up 5.3% y-o-y. Foreign reserve assets declined in August 2017, to its lowest levels since May 2011. Meanwhile, the deposits grew 2.6% y-o-y (-0.6% m-o-m), whereas credit to the private sector slipped 1.2% y-o-y in August (+0.4% m-o-m). Crude oil prices (Brent November futures contract) advanced 8.9% m-o-m in September 2017, as the US oil refineries restarted operations after disruptions caused by hurricane. Further, the oil prices were also supported by prospects of possible extension of the OPEC output cut deal and signs of reducing global glut. Deflation persisted in the Kingdom in August 2017, owing to the prevailing fall in food and beverages sector along with the drop in housing, water, electricity & gas sector. Meanwhile, on a sequential basis, the index remained unchanged in August 2017. Crude price outlook: The US Energy Information Administration (EIA) in its September 2017 report estimated Brent crude oil prices to average around US$51/barrel in 2017 and US$52/barrel in 2018. Figure 1 Key macro indicators Variable
Sep-17
Aug-17
Jul-17
2016
2015
-
-0.1%
-0.3%
3.5%
2.2%
Sep-17
Aug-17
Jul-17
2016
2015
55.0
49.6
47.1
41
49.9
Sep-17
Aug-17
Jul-17
2016
2015
Money Supply (M3)
-
2.4%
2.7%
0.8%
2.5%
Total Banking Sector Claims
-
2.7
2.2
9.1
10.5
1.794
1.797
1.793
2.066
0.88
Repo Rate
2.00
2.00
2.00
2.00
2.00
Reverse Repo Rate
1.25
1.25
1.25
0.75
0.5
General Share Price Index (1985=1000)
-
19.4
12.6
4.3
-17.1
Q1 2017*
Q4 2016
2016*
2015
GDP Rate at Constant Prices (2010=100)
-
-0.5%
2.2%
1.7%
4.1%
Q1 2017**
Q4 2016*
2016*
2015
Inflation Rate (2007=100) Average Oil Price (Arab Light) (US$/Barrel)
Interbank Interest Rate (3 Month)
Current Account to GDP Ratio (current prices)
-
3.9%
-1.4%
-4.3%
-8.7%
Total Imports (fob) to GDP Ratio (current prices)
-
17.9%
18.0%
19.8%
24.3%
Non-oil Exports to GDP Ratio (current prices)
-
7.0%
7.4%
7.3%
7.7%
Source: SAMA, * Provisional, **Adjusted. Arab light and Interbank interest rate data is as on 26 September 2017.
Disclosures Please refer to the important disclosures at the back of this report.
2
Economic Research Monthly Economic Report October 2017
Gross Domestic Product Kingdom’s GDP declined by 1.0% According to the GDP data released by GASTAT, the Kingdom’s Q2 2017 GDP dropped by 1.0% y-o-y (-0.5% y-o-y in Q1 2017), dragged down by the oil sector (-1.8% y-o-y Vs -2.3% yy-o-y in Q2 2017
o-y in Q1 2017). The oil sector is negatively impacted by the OPEC output cut deal, which the cartel is building a consensus to extend amidst signs of reducing global glut. Meanwhile, the non-oil sector rose by 0.6% y-o-y in Q2 2017, nearly same as the previous quarter, buoyed by the government sector.
Figure 2 Quarterly GDP Trend (y-o-y growth) Real GDP by type of economic activity
Share in GDP
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Agriculture, Forestry & Fishing
2.5%
0.6%
0.8%
3.1%
1.4%
Mining & Quarrying
40.1%
-2.4%
-2.3%
3.8%
3.4%
Manufacturing
12.2%
1.6%
2.3%
3.1%
3.6%
Electricity, Gas and Water
1.6%
1.1%
-1.6%
5.8%
6.2%
Construction
4.6%
-1.6%
-3.2%
-2.2%
-3.9%
Wholesale & Retail Trade, Restaurants & hotels
8.5%
-0.1%
0.3%
-2.0%
-1.4%
Transport, Storage & Communication
5.9%
0.8%
1.0%
4.4%
1.8%
Finance, Insurance, Real Estate & Business Services
9.6%
1.9%
1.1%
3.8%
2.2%
Community, Social & Personal Services
2.0%
0.9%
0.4%
1.9%
1.5%
Producers of Government Services
13.1%
0.9%
-0.4%
0.5%
-3.9%
100.0%
-1.0%
-0.5%
2.2%
1.2%
Gross Domestic Product Source: GAS, Al Rajhi Capital
Figure 3 Real GDP trend at constant prices (y-o-y) 15.0%
8.0% 6.0%
10.0%
5.0%
4.0%
3.3% 2.9%
2.0%
2.6% 0.3%
4.4%
5.0%
8.1%
8.0% 6.0% 3.0% 0.0%
4.1%
4.0%
0.2%
0.6%
0.0%
0.7% 6.2%
6.1%
6.0% 0.6% 0.3%
-2.1%
4.2%
-2.0%
4.6% 0.6% -2.3%
-0.7%
0.6% -1.8%
-4.0% -6.0%
-5.0%
-8.0% Q1
Q2
Q3
Q4
Q1
2014
Q2
Q3
Q4
2015 Oil Sector
Non-Oil Sector
Q1
Q2
Q3 2016
Q4
Q1
Q2 2017
GDP (RHS)
Source: GAS, Al Rajhi Capital
Labor market update Saudi unemployment reached 12.8% in Q2 2017
Unemployment continued to rise in the Kingdom with overall unemployment reaching 6% in Q2 from 5.8% in Q1. Saudi unemployment also increased, though at a slower pace (Q2: 12.8%, Q1: 12.7%). Saudi unemployment increased even as 13.5k new Saudi jobs were added during the quarter, as the Saudi labor force grew by 28.9k. On the other hand, non-Saudi employment declined ~61.5k during the quarter. Despite the increase in unemployment, data indicated a rise in average monthly wages (+4% q-o-q) to SAR6,195. Average monthly wages of Saudi nationals rose by a marginal 0.3% q-o-q to SAR9,911.
Disclosures Please refer to the important disclosures at the back of this report.
3
Economic Research Monthly Economic Report October 2017
Figure 4 Unemployment has been rising
Figure 5 Average monthly wages in the Kingdom
13.0% 12.7% 12.5%
12.8%
12.3% 12.1%
6.1%
6,600
6.0%
6,400
5.9%
6,200
5.8%
6,000
5.7%
5,800
5.6%
5,600
5.5%
5,400
5.4%
5,200
5.3%
5,000
Title: Source:
10,600 10,400
Please fill in the values above to have them entered in your10,200 report 10,000
12.0%
9,800 9,600
11.5%
11.7%
11.6%
11.5%
9,400 9,200
11.0%
10.5% 2014
2015
Q2 2016
Q3 2016
Saudi unemployment rate
Q4 2016
Q1 2017
9,000 8,800 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 Q4 2016 Q1 2017 Q2 2017
Q2 2017
Total
Total unemployement rate (RHS)
Source: GASTAT, Al Rajhi Capital
Saudis (RHS)
Source: GASTAT, Al Rajhi Capital
Consumer spending indicators POS and ATM data indicated that consumer spending continued to be strong in August 2017. POS transactions climbed 10.3% y-o-y in August 2017, versus a 12.8% y-o-y rise in July 2017. ATM cash withdrawals rose by 4.0% y-o-y in August 2017, as against the annual rise of 2.4% in the previous month. Spending growth was primarily seen in the ‘Restaurants and Hotels’ (+19.3% y-o-y), ‘Clothing & Footwear’ (+13.9% y-o-y) and ‘Food & Beverages’ (+13.4%), whereas spending fell in the ‘Transportation’ sector (-4.9% y-o-y).
Consumer spending remained strong in August 2017
Figure 6 Point-of-sale transactions (POS) trend
Figure 7 ATM cash withdrawals trend
SAR bn 20.0
40%
18.0 30%
16.0 14.0
20%
12.0 10.0
10%
8.0 0%
6.0 4.0
-10%
2.0 -
-20%
POS
YoY
Source: SAMA, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
SAR bn 80.0
50%
70.0
40%
60.0
30%
50.0
20%
40.0
10%
30.0
0%
20.0
-10%
10.0
-20%
-
-30%
ATM Cash withdrawals
YoY
Source: SAMA, Al Rajhi Capital
4
Economic Research Monthly Economic Report October 2017
Figure 8 Points-of-sale transactions trend by sectors YoY change 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% Dec-16
Jan-17
Transportation
Feb-17
Mar-17
Rest. and Hotels
Apr-17
May-17
Food & Beverages
Jun-17
Jul-17
Aug-17
Cloth. and Footwear
Source: GAS, Al Rajhi Capital
Foreign reserve assets Foreign reserve assets in August 2017 dropped to its lowest level since May 2011
Kingdom’s reserve assets continued to fall in August 2017, down 13.2% y-o-y, versus a fall of 12.6% y-o-y in July 2017. On a monthly basis, too, reserves fell by 1.4% (-1.2% m-o-m in July 2017), to stand at SAR 1,829bn (US$ 487.7bn). The government recently raised US$ 12.5bn via the third international bond sale, which may curb the government’s need to tap its foreign reserve assets to plug its fiscal deficit.
Figure 9 Reserves assets
Figure 10 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%
Reserves Assets
YoY (RHS)
Source: SAMA, Al Rajhi Capital
0
Foreign Currency & Deposits Abroad
Investment in Foreign Assets
Source: SAMA, Al Rajhi Capital
Credit and deposit growth Private sector credit growth rose on a monthly basis in August, while deposits continued to fall
Banking sector credit to the private sector declined for the sixth straight month, falling 1.2% y-o-y, compared the drop of 1.5% y-o-y in July 2017. However, on a monthly basis, credit to private sector rose (+0.4% m-o-m) after falling for two consecutive months. Claims on the public sector climbed 27.7% y-o-y, owing to the rise in government bond holdings. Meanwhile, deposits rose by 2.6% y-o-y in August 2017 (-0.6% m-o-m). ‘Business and Individual’ deposits, which constitute for over 70% of the total deposit base rose 0.9% y-o-y (0.2% m-o-m), while ‘Government Entities’ deposits climbed 23.8% y-o-y (-0.3% m-o-m).
Disclosures Please refer to the important disclosures at the back of this report.
5
Economic Research Monthly Economic Report October 2017
Figure 11 Credit and deposit growth
Figure 12 Loans to Deposits
YoY 20.0%
92.0% 90.0%
15.0%
88.0% 86.0%
10.0%
84.0% 5.0%
82.0% 80.0%
0.0%
78.0% -5.0% 76.0% -10.0%
74.0%
Deposits
Credit
Source: SAMA, Al Rajhi Capital
Loans to Deposit ratio
Source: SAMA, Al Rajhi Capital
Money supply Money Supply (M3) continued to rise in August 2017
The broader money supply (M3) grew by 2.4% y-o-y in August 2017, to reach SAR 1,795bn, as against the yearly rise of 2.7% in July 2017. Growth in the M3 indicator has witnessed a rise, owing to higher demand deposits. On a monthly basis, M3 dropped by 0.4% as compared to the fall of 1.0% last month. However, as per the weekly money supply data, the M3 may slow down slightly in September 2017.
Figure 13 Money supply growth (y-o-y)
Figure 14 Deposits break-up SAR bn 1,200
25.0% 20.0%
1,000
15.0% 800
10.0% 5.0%
600
0.0%
400
-5.0% 200
-10.0% -15.0%
0
M1
M2
M3
Source: SAMA, Al Rajhi Capital
Time and Saving Deposits
Demand Deposits
Source: SAMA, Al Rajhi Capital
Banking Sector Banking profits gained in August for the second straight month
The banking sector profits rose by 5.3% y-o-y in August 2017, as against the annual rise of 10.4% y-o-y in the previous month. The cumulative banking sector profits totaled SAR 30,177mn in 2017, down 0.7% y-o-y.
Disclosures Please refer to the important disclosures at the back of this report.
6
Economic Research Monthly Economic Report October 2017
Figure 15 Non-performing loans
Figure 16 Net Profit for Banks SAR mn 5,000
1.5
4,500
1.4 4,000 3,500
1.3
3,000 1.2
2,500 2,000
1.1
1,500 1.0
1,000 500 -
Nonperf orming loans to total gross loans
Source: SAMA, Al Rajhi Capital. Q3 2017 data not released yet.
Source: SAMA, Al Rajhi Capital
Inflation dynamics Deflation prevailed in the Kingdom in August 2017 for the eighth straight month
Cost of living index continued to be in the deflation territory for the eighth consecutive month in August 2017 registering at -0.1% y-o-y. Sectors like the ‘Food & Beverage’, ‘Housing, Water, Gas & other Fuels’, ‘Transport’, and ‘Furnishings, Household Equipment & Maintenance’, which constitute ~62% of the index, dropped on a yearly basis in August by 1.8%, 0.5%, 1.6% and 1.0%, respectively. On a monthly basis, the cost of living index remained unchanged in August 2017.
Figure 17 Inflation trend (y-o-y) 5.0%
Figure 18 Inflation drivers (y-o-y) 14.0% 12.0%
4.0%
10.0% 8.0%
3.0%
6.0% 4.0%
2.0%
2.0% 0.0%
1.0%
-2.0% -4.0%
0.0%
-6.0% -1.0%
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
7
Economic Research Monthly Economic Report October 2017
Crude oil dynamics Crude oil production decreased on a monthly basis in August 2017 to reach 10.0mbpd
Crude oil output in the Kingdom declined on a monthly basis in August 2017, to stand at 10.0 mbpd, after rising for two straight months. Meanwhile, on a yearly basis, crude oil production fell by 6.0% in August 2017. The crude oil prices (Brent November futures contract) jumped 10.6% MTD in September 2017, as US refineries restarted their operations post the hurricane disruption. Further, signs of reducing global glut coupled with possible extension of the OPEC output cut deal also boosted the prices. Arab light also rose 12.0% MTD in September 2017.
Figure 19 Saudi crude oil production trend
Figure 20 Crude oil prices trend 70
10.8
12.0%
10.6
10.0%
10.4
8.0%
10.2
6.0%
10.0
4.0%
50
9.8
2.0%
45
9.6
0.0%
40
9.4
-2.0%
35
9.2
-4.0%
30
9.0
-6.0%
25
8.8
-8.0%
Saudi Crude oil production
65 60 55
20
YoY growth
Brent
Source: Bloomberg, Al Rajhi Capital
WTI
Arab Light
Source: Bloomberg, Al Rajhi Capital
Non-oil foreign trade Non-oil exports and imports witnessed a yearly rise in July 2017
Kingdom’s non-oil exports advanced 28.0% y-o-y in July 2017, after registering a fall for two consecutive months. Exports were supported by the rise in plastic & rubbers (29.1% y-o-y), which constituted 36.5% of the total non-oil exports, followed by chemical products (25.7% yo-y), which contributed 29.5% to the total exports. Further, non-oil imports jumped 16.0% yo-y in July 2017, compared to the drop of 29.0% y-o-y in the previous month. The rise can be attributed to imports of machinery & electrical (+19.0% y-o-y) and transport equipments (+8.5% y-o-y) which together account for 38.5% of the total imports. Meanwhile, UAE was the topmost export destination accounting 14.4% of the total non-oil exports, while China was the top import nation comprising 17.5% of the total non-oil imports.
Figure 21 Non-Oil Exports
Commodities (SAR mn)
May-17
Jun-17
Jul-17
% y-o-y
% m-o-m
Plastics & Rubbers
4,560
4,259
5,805
29.1%
36.3%
Chemical Products
4,215
3,601
4,700
25.7%
30.5%
Ordinary Metals
1,362
997
1,166
16.3%
17.0%
Transport Equipments
1,125
955
1,114
61.4%
16.6%
Others
3,692
2,248
3,132
24.7%
39.3%
Total
14,954
12,060
15,917
28.0%
32.0%
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
8
Economic Research Monthly Economic Report October 2017
Figure 22 Non-Oil Imports
Commodities (SAR mn)
May-17
Jun-17
Jul-17
% y-o-y
% m-o-m
Machinery & Electricals
10,196
7,188
10,651
19.0%
48.2%
Transport Equipments
6,089
5,943
5,994
8.5%
0.9%
Ordinary Metals
4,027
3,046
3,856
1.0%
26.6%
Chemical Products
3,933
3,077
4,609
40.6%
49.8%
Others
19,425
13,538
18,091
15.4%
33.6%
Total
43,670
32,792
43,201
16.0%
31.7%
Source: GAS, Al Rajhi Capital
Figure 23 Non-oil export trend (y-o-y)
Figure 24 Non-oil import trend (y-o-y)
YoY 70.0%
YoY 60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
-10.0%
-10.0%
-20.0%
-20.0%
-30.0%
-30.0%
-40.0%
-40.0%
-50.0%
Non-oil Export
Non-oil Import
Source: GAS, Al Rajhi Capital
Source: GAS, Al Rajhi Capital
Saudi International Bond Yields Saudi International bond yields rose on a MTD basis.
Saudi International bond yields with 5 year maturity rose by 12.6bps MTD in September 2017 to 2.688%, while bond yields with 10 and 30 year maturities increased 23.8bps and 14.7bps, respectively to 3.411% and 4.451%. Figure 25 International Bond Yields 6.0% 5.0% 4.0% 3.0%
2.0% 1.0%
30 Yr
10 Yr
27-Sep-17
7-Sep-17
17-Sep-17
28-Aug-17
8-Aug-17
18-Aug-17
29-Jul-17
9-Jul-17
19-Jul-17
29-Jun-17
9-Jun-17
19-Jun-17
30-May-17
20-May-17
30-Apr-17
10-May-17
20-Apr-17
10-Apr-17
31-Mar-17
21-Mar-17
1-Mar-17
11-Mar-17
9-Feb-17
19-Feb-17
30-Jan-17
20-Jan-17
10-Jan-17
31-Dec-16
21-Dec-16
1-Dec-16
11-Dec-16
21-Nov-16
1-Nov-16
11-Nov-16
22-Oct-16
0.0%
5 Yr
Source: Bloomberg, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
9
Economic Research Monthly Economic Report October 2017
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, 40 Wall Street 59th 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.
Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication.
Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months.
Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither Al Rajhi nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. Al Rajhi may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of Al Rajhi. Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States. The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by Al Rajhi with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior consent of Al Rajhi and Al Rajhi accepts no liability whatsoever for the actions of third parties in this respect. 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.
Disclosures Please refer to the important disclosures at the back of this report.
10
Economic Research Monthly Economic Report October 2017
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.
Contact us Mazen AlSudairi Head of Research Tel : +966 1 211 9449 Email: [email protected] Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
11
Research Department ARC Research Team Tel. +966 11 211 9449, [email protected]
Saudi Arabian Economy
Saudi economy: Consumption picks up Saudi Arabia’s economy contracted for the second straight quarter in Q2 2017, as GDP declined 1% y-o-y in Q2 2017, following a 0.5% y-o-y fall in Q1 2017. The decline in the GDP is primarily due to lower oil production resulting from the agreement with OPEC and non-OPEC members to limit supply. The non-oil sector grew at a moderate pace (+0.6% y-o-y), flat compared to the previous quarter, as government sector growth (+1% y-o-y) improved, offsetting the slowdown in private sector (+0.4%). Meanwhile, monthly data for August indicated strong consumer spending, with POS transactions (+10.3% y-o-y) and ATM withdrawals (+4% y-o-y) rising at healthy pace. Credit to the private sector recovered (+0.4% m-o-m) in August, after declining over the previous two months, whereas deposits were down sequentially for the second consecutive month (-0.6% m-o-m). SAMA’s reserve assets continued to decline in August (-1.4% m-o-m), which can be partially attributed to the country’s increased investment activities. However, government reserves with SAMA were unchanged in August from the previous month. The recently raised US$ 12.5bn via the third international bond sale should slowdown the pace of drawdown of the reserve assets. Moody’s has assigned A1 rating to the Saudi Arabian global notes issued under the government’s medium-term notes (MTN) program, indicating high level of fiscal and economic strength. Nevertheless, quarterly labor data showed that unemployment continued to rise, albeit at a slower pace, reaching 12.8% among Saudi nationals by Q2 2017, from 12.7% in the previous quarter. On the positive side, average monthly wages improved marginally for Saudi nationals (+0.3% q-o-q) from the previous quarter, while overall average monthly wages rose more sharply (+4% q-o-q). Meanwhile, the government took a major step towards achieving one of its targets under the “Vision 2030”, allowing women to drive after decades of ban. The move will make it easier for women to find employment and increase their participation in the labor force, thereby boosting household income and spending. The government is expected to continue the reforms and is likely to announce another round of hike in transport fuel and utility prices in the coming months. Saudi Arabia raised US$12.5bn from its third international bond sale. The 5 year bond was offered at 110 bps over the US treasuries, the 10 year at 145 bps and the 30 year at 180 bps. The bond sale attracted bids of US$ 40bn. Q2 2017 GDP contracted 1.0% y-o-y, compared to 0.5% decline last quarter, dragged down by the oil sector. The oil sector fell 1.8% y-o-y in Q2 2017, versus the fall of 2.3% in Q1 2017, while the non-oil sector grew by 0.6% y-o-y in Q2 2017, nearly same as the previous quarter. SAMA revised mortgage rules in order to provide an impetus to the housing sector. The central bank announced an exemption from administrative fees for mortgage holders in case of switching between fixed and floating rate loans. Further, mortgage holders can move to new lenders without paying an additional charge. Under the NTP 2020, the government targets to increase the percentage of Saudi family homeowners to 52% by 2020 from 47%.
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.
Economic Research Monthly Economic Report October 2017
Point-of-sale (POS) transaction indicated strong consumer spending activity, recording a 10.3% y-o-y rise in August 2017, as against the rise of 12.8% y-o-y in July. Meanwhile, the ATM transactions grew by 4.0% y-o-y in August 2017 versus the rise of 2.4% y-o-y in July 2017. Q2 2017 labor data indicated that employment of Saudi nationals increased by 13.5k during the quarter. However, as ~28.9k people were added to the Saudi labor force, Saudi unemployment rose slightly to 12.8% in Q2 from 12.7% in the previous quarter. Even while unemployment increased, average monthly wages of Saudi nationals rose marginally on a sequential basis (+0.3% q-o-q), though the figure was lower~5% y-o-y. Despite the increase in Saudi employment, overall employment was down by ~48k in Q2. Total labor force declined ~132.5k, indicating that a lot of expats went out of the labor force. Overall unemployment increased to 6% from 5.8% in the previous quarter. Overall average monthly wages rose 4% m-o-m, but was still down 3% y-o-y. Kingdom’s non-oil exports witnessed a yearly rise of 28.0% in July 2017, after recording a fall for two straight months, while the non-oil imports, too, grew by 16.0% y-o-y in July 2017, compared to the drop of 29.0% y-o-y in the previous month. Banking sector profits continued to stood at SAR3,964 mn in August 2017, almost flat mo-m, but up 5.3% y-o-y. Foreign reserve assets declined in August 2017, to its lowest levels since May 2011. Meanwhile, the deposits grew 2.6% y-o-y (-0.6% m-o-m), whereas credit to the private sector slipped 1.2% y-o-y in August (+0.4% m-o-m). Crude oil prices (Brent November futures contract) advanced 8.9% m-o-m in September 2017, as the US oil refineries restarted operations after disruptions caused by hurricane. Further, the oil prices were also supported by prospects of possible extension of the OPEC output cut deal and signs of reducing global glut. Deflation persisted in the Kingdom in August 2017, owing to the prevailing fall in food and beverages sector along with the drop in housing, water, electricity & gas sector. Meanwhile, on a sequential basis, the index remained unchanged in August 2017. Crude price outlook: The US Energy Information Administration (EIA) in its September 2017 report estimated Brent crude oil prices to average around US$51/barrel in 2017 and US$52/barrel in 2018. Figure 1 Key macro indicators Variable
Sep-17
Aug-17
Jul-17
2016
2015
-
-0.1%
-0.3%
3.5%
2.2%
Sep-17
Aug-17
Jul-17
2016
2015
55.0
49.6
47.1
41
49.9
Sep-17
Aug-17
Jul-17
2016
2015
Money Supply (M3)
-
2.4%
2.7%
0.8%
2.5%
Total Banking Sector Claims
-
2.7
2.2
9.1
10.5
1.794
1.797
1.793
2.066
0.88
Repo Rate
2.00
2.00
2.00
2.00
2.00
Reverse Repo Rate
1.25
1.25
1.25
0.75
0.5
General Share Price Index (1985=1000)
-
19.4
12.6
4.3
-17.1
Q1 2017*
Q4 2016
2016*
2015
GDP Rate at Constant Prices (2010=100)
-
-0.5%
2.2%
1.7%
4.1%
Q1 2017**
Q4 2016*
2016*
2015
Inflation Rate (2007=100) Average Oil Price (Arab Light) (US$/Barrel)
Interbank Interest Rate (3 Month)
Current Account to GDP Ratio (current prices)
-
3.9%
-1.4%
-4.3%
-8.7%
Total Imports (fob) to GDP Ratio (current prices)
-
17.9%
18.0%
19.8%
24.3%
Non-oil Exports to GDP Ratio (current prices)
-
7.0%
7.4%
7.3%
7.7%
Source: SAMA, * Provisional, **Adjusted. Arab light and Interbank interest rate data is as on 26 September 2017.
Disclosures Please refer to the important disclosures at the back of this report.
2
Economic Research Monthly Economic Report October 2017
Gross Domestic Product Kingdom’s GDP declined by 1.0% According to the GDP data released by GASTAT, the Kingdom’s Q2 2017 GDP dropped by 1.0% y-o-y (-0.5% y-o-y in Q1 2017), dragged down by the oil sector (-1.8% y-o-y Vs -2.3% yy-o-y in Q2 2017
o-y in Q1 2017). The oil sector is negatively impacted by the OPEC output cut deal, which the cartel is building a consensus to extend amidst signs of reducing global glut. Meanwhile, the non-oil sector rose by 0.6% y-o-y in Q2 2017, nearly same as the previous quarter, buoyed by the government sector.
Figure 2 Quarterly GDP Trend (y-o-y growth) Real GDP by type of economic activity
Share in GDP
Q2 2017
Q1 2017
Q4 2016
Q3 2016
Agriculture, Forestry & Fishing
2.5%
0.6%
0.8%
3.1%
1.4%
Mining & Quarrying
40.1%
-2.4%
-2.3%
3.8%
3.4%
Manufacturing
12.2%
1.6%
2.3%
3.1%
3.6%
Electricity, Gas and Water
1.6%
1.1%
-1.6%
5.8%
6.2%
Construction
4.6%
-1.6%
-3.2%
-2.2%
-3.9%
Wholesale & Retail Trade, Restaurants & hotels
8.5%
-0.1%
0.3%
-2.0%
-1.4%
Transport, Storage & Communication
5.9%
0.8%
1.0%
4.4%
1.8%
Finance, Insurance, Real Estate & Business Services
9.6%
1.9%
1.1%
3.8%
2.2%
Community, Social & Personal Services
2.0%
0.9%
0.4%
1.9%
1.5%
Producers of Government Services
13.1%
0.9%
-0.4%
0.5%
-3.9%
100.0%
-1.0%
-0.5%
2.2%
1.2%
Gross Domestic Product Source: GAS, Al Rajhi Capital
Figure 3 Real GDP trend at constant prices (y-o-y) 15.0%
8.0% 6.0%
10.0%
5.0%
4.0%
3.3% 2.9%
2.0%
2.6% 0.3%
4.4%
5.0%
8.1%
8.0% 6.0% 3.0% 0.0%
4.1%
4.0%
0.2%
0.6%
0.0%
0.7% 6.2%
6.1%
6.0% 0.6% 0.3%
-2.1%
4.2%
-2.0%
4.6% 0.6% -2.3%
-0.7%
0.6% -1.8%
-4.0% -6.0%
-5.0%
-8.0% Q1
Q2
Q3
Q4
Q1
2014
Q2
Q3
Q4
2015 Oil Sector
Non-Oil Sector
Q1
Q2
Q3 2016
Q4
Q1
Q2 2017
GDP (RHS)
Source: GAS, Al Rajhi Capital
Labor market update Saudi unemployment reached 12.8% in Q2 2017
Unemployment continued to rise in the Kingdom with overall unemployment reaching 6% in Q2 from 5.8% in Q1. Saudi unemployment also increased, though at a slower pace (Q2: 12.8%, Q1: 12.7%). Saudi unemployment increased even as 13.5k new Saudi jobs were added during the quarter, as the Saudi labor force grew by 28.9k. On the other hand, non-Saudi employment declined ~61.5k during the quarter. Despite the increase in unemployment, data indicated a rise in average monthly wages (+4% q-o-q) to SAR6,195. Average monthly wages of Saudi nationals rose by a marginal 0.3% q-o-q to SAR9,911.
Disclosures Please refer to the important disclosures at the back of this report.
3
Economic Research Monthly Economic Report October 2017
Figure 4 Unemployment has been rising
Figure 5 Average monthly wages in the Kingdom
13.0% 12.7% 12.5%
12.8%
12.3% 12.1%
6.1%
6,600
6.0%
6,400
5.9%
6,200
5.8%
6,000
5.7%
5,800
5.6%
5,600
5.5%
5,400
5.4%
5,200
5.3%
5,000
Title: Source:
10,600 10,400
Please fill in the values above to have them entered in your10,200 report 10,000
12.0%
9,800 9,600
11.5%
11.7%
11.6%
11.5%
9,400 9,200
11.0%
10.5% 2014
2015
Q2 2016
Q3 2016
Saudi unemployment rate
Q4 2016
Q1 2017
9,000 8,800 H1 2014 H2 2014 H1 2015 H2 2015 H1 2016 Q4 2016 Q1 2017 Q2 2017
Q2 2017
Total
Total unemployement rate (RHS)
Source: GASTAT, Al Rajhi Capital
Saudis (RHS)
Source: GASTAT, Al Rajhi Capital
Consumer spending indicators POS and ATM data indicated that consumer spending continued to be strong in August 2017. POS transactions climbed 10.3% y-o-y in August 2017, versus a 12.8% y-o-y rise in July 2017. ATM cash withdrawals rose by 4.0% y-o-y in August 2017, as against the annual rise of 2.4% in the previous month. Spending growth was primarily seen in the ‘Restaurants and Hotels’ (+19.3% y-o-y), ‘Clothing & Footwear’ (+13.9% y-o-y) and ‘Food & Beverages’ (+13.4%), whereas spending fell in the ‘Transportation’ sector (-4.9% y-o-y).
Consumer spending remained strong in August 2017
Figure 6 Point-of-sale transactions (POS) trend
Figure 7 ATM cash withdrawals trend
SAR bn 20.0
40%
18.0 30%
16.0 14.0
20%
12.0 10.0
10%
8.0 0%
6.0 4.0
-10%
2.0 -
-20%
POS
YoY
Source: SAMA, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
SAR bn 80.0
50%
70.0
40%
60.0
30%
50.0
20%
40.0
10%
30.0
0%
20.0
-10%
10.0
-20%
-
-30%
ATM Cash withdrawals
YoY
Source: SAMA, Al Rajhi Capital
4
Economic Research Monthly Economic Report October 2017
Figure 8 Points-of-sale transactions trend by sectors YoY change 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% Dec-16
Jan-17
Transportation
Feb-17
Mar-17
Rest. and Hotels
Apr-17
May-17
Food & Beverages
Jun-17
Jul-17
Aug-17
Cloth. and Footwear
Source: GAS, Al Rajhi Capital
Foreign reserve assets Foreign reserve assets in August 2017 dropped to its lowest level since May 2011
Kingdom’s reserve assets continued to fall in August 2017, down 13.2% y-o-y, versus a fall of 12.6% y-o-y in July 2017. On a monthly basis, too, reserves fell by 1.4% (-1.2% m-o-m in July 2017), to stand at SAR 1,829bn (US$ 487.7bn). The government recently raised US$ 12.5bn via the third international bond sale, which may curb the government’s need to tap its foreign reserve assets to plug its fiscal deficit.
Figure 9 Reserves assets
Figure 10 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%
Reserves Assets
YoY (RHS)
Source: SAMA, Al Rajhi Capital
0
Foreign Currency & Deposits Abroad
Investment in Foreign Assets
Source: SAMA, Al Rajhi Capital
Credit and deposit growth Private sector credit growth rose on a monthly basis in August, while deposits continued to fall
Banking sector credit to the private sector declined for the sixth straight month, falling 1.2% y-o-y, compared the drop of 1.5% y-o-y in July 2017. However, on a monthly basis, credit to private sector rose (+0.4% m-o-m) after falling for two consecutive months. Claims on the public sector climbed 27.7% y-o-y, owing to the rise in government bond holdings. Meanwhile, deposits rose by 2.6% y-o-y in August 2017 (-0.6% m-o-m). ‘Business and Individual’ deposits, which constitute for over 70% of the total deposit base rose 0.9% y-o-y (0.2% m-o-m), while ‘Government Entities’ deposits climbed 23.8% y-o-y (-0.3% m-o-m).
Disclosures Please refer to the important disclosures at the back of this report.
5
Economic Research Monthly Economic Report October 2017
Figure 11 Credit and deposit growth
Figure 12 Loans to Deposits
YoY 20.0%
92.0% 90.0%
15.0%
88.0% 86.0%
10.0%
84.0% 5.0%
82.0% 80.0%
0.0%
78.0% -5.0% 76.0% -10.0%
74.0%
Deposits
Credit
Source: SAMA, Al Rajhi Capital
Loans to Deposit ratio
Source: SAMA, Al Rajhi Capital
Money supply Money Supply (M3) continued to rise in August 2017
The broader money supply (M3) grew by 2.4% y-o-y in August 2017, to reach SAR 1,795bn, as against the yearly rise of 2.7% in July 2017. Growth in the M3 indicator has witnessed a rise, owing to higher demand deposits. On a monthly basis, M3 dropped by 0.4% as compared to the fall of 1.0% last month. However, as per the weekly money supply data, the M3 may slow down slightly in September 2017.
Figure 13 Money supply growth (y-o-y)
Figure 14 Deposits break-up SAR bn 1,200
25.0% 20.0%
1,000
15.0% 800
10.0% 5.0%
600
0.0%
400
-5.0% 200
-10.0% -15.0%
0
M1
M2
M3
Source: SAMA, Al Rajhi Capital
Time and Saving Deposits
Demand Deposits
Source: SAMA, Al Rajhi Capital
Banking Sector Banking profits gained in August for the second straight month
The banking sector profits rose by 5.3% y-o-y in August 2017, as against the annual rise of 10.4% y-o-y in the previous month. The cumulative banking sector profits totaled SAR 30,177mn in 2017, down 0.7% y-o-y.
Disclosures Please refer to the important disclosures at the back of this report.
6
Economic Research Monthly Economic Report October 2017
Figure 15 Non-performing loans
Figure 16 Net Profit for Banks SAR mn 5,000
1.5
4,500
1.4 4,000 3,500
1.3
3,000 1.2
2,500 2,000
1.1
1,500 1.0
1,000 500 -
Nonperf orming loans to total gross loans
Source: SAMA, Al Rajhi Capital. Q3 2017 data not released yet.
Source: SAMA, Al Rajhi Capital
Inflation dynamics Deflation prevailed in the Kingdom in August 2017 for the eighth straight month
Cost of living index continued to be in the deflation territory for the eighth consecutive month in August 2017 registering at -0.1% y-o-y. Sectors like the ‘Food & Beverage’, ‘Housing, Water, Gas & other Fuels’, ‘Transport’, and ‘Furnishings, Household Equipment & Maintenance’, which constitute ~62% of the index, dropped on a yearly basis in August by 1.8%, 0.5%, 1.6% and 1.0%, respectively. On a monthly basis, the cost of living index remained unchanged in August 2017.
Figure 17 Inflation trend (y-o-y) 5.0%
Figure 18 Inflation drivers (y-o-y) 14.0% 12.0%
4.0%
10.0% 8.0%
3.0%
6.0% 4.0%
2.0%
2.0% 0.0%
1.0%
-2.0% -4.0%
0.0%
-6.0% -1.0%
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
7
Economic Research Monthly Economic Report October 2017
Crude oil dynamics Crude oil production decreased on a monthly basis in August 2017 to reach 10.0mbpd
Crude oil output in the Kingdom declined on a monthly basis in August 2017, to stand at 10.0 mbpd, after rising for two straight months. Meanwhile, on a yearly basis, crude oil production fell by 6.0% in August 2017. The crude oil prices (Brent November futures contract) jumped 10.6% MTD in September 2017, as US refineries restarted their operations post the hurricane disruption. Further, signs of reducing global glut coupled with possible extension of the OPEC output cut deal also boosted the prices. Arab light also rose 12.0% MTD in September 2017.
Figure 19 Saudi crude oil production trend
Figure 20 Crude oil prices trend 70
10.8
12.0%
10.6
10.0%
10.4
8.0%
10.2
6.0%
10.0
4.0%
50
9.8
2.0%
45
9.6
0.0%
40
9.4
-2.0%
35
9.2
-4.0%
30
9.0
-6.0%
25
8.8
-8.0%
Saudi Crude oil production
65 60 55
20
YoY growth
Brent
Source: Bloomberg, Al Rajhi Capital
WTI
Arab Light
Source: Bloomberg, Al Rajhi Capital
Non-oil foreign trade Non-oil exports and imports witnessed a yearly rise in July 2017
Kingdom’s non-oil exports advanced 28.0% y-o-y in July 2017, after registering a fall for two consecutive months. Exports were supported by the rise in plastic & rubbers (29.1% y-o-y), which constituted 36.5% of the total non-oil exports, followed by chemical products (25.7% yo-y), which contributed 29.5% to the total exports. Further, non-oil imports jumped 16.0% yo-y in July 2017, compared to the drop of 29.0% y-o-y in the previous month. The rise can be attributed to imports of machinery & electrical (+19.0% y-o-y) and transport equipments (+8.5% y-o-y) which together account for 38.5% of the total imports. Meanwhile, UAE was the topmost export destination accounting 14.4% of the total non-oil exports, while China was the top import nation comprising 17.5% of the total non-oil imports.
Figure 21 Non-Oil Exports
Commodities (SAR mn)
May-17
Jun-17
Jul-17
% y-o-y
% m-o-m
Plastics & Rubbers
4,560
4,259
5,805
29.1%
36.3%
Chemical Products
4,215
3,601
4,700
25.7%
30.5%
Ordinary Metals
1,362
997
1,166
16.3%
17.0%
Transport Equipments
1,125
955
1,114
61.4%
16.6%
Others
3,692
2,248
3,132
24.7%
39.3%
Total
14,954
12,060
15,917
28.0%
32.0%
Source: GAS, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
8
Economic Research Monthly Economic Report October 2017
Figure 22 Non-Oil Imports
Commodities (SAR mn)
May-17
Jun-17
Jul-17
% y-o-y
% m-o-m
Machinery & Electricals
10,196
7,188
10,651
19.0%
48.2%
Transport Equipments
6,089
5,943
5,994
8.5%
0.9%
Ordinary Metals
4,027
3,046
3,856
1.0%
26.6%
Chemical Products
3,933
3,077
4,609
40.6%
49.8%
Others
19,425
13,538
18,091
15.4%
33.6%
Total
43,670
32,792
43,201
16.0%
31.7%
Source: GAS, Al Rajhi Capital
Figure 23 Non-oil export trend (y-o-y)
Figure 24 Non-oil import trend (y-o-y)
YoY 70.0%
YoY 60.0%
60.0%
50.0%
50.0%
40.0%
40.0%
30.0%
30.0%
20.0%
20.0%
10.0%
10.0%
0.0%
0.0%
-10.0%
-10.0%
-20.0%
-20.0%
-30.0%
-30.0%
-40.0%
-40.0%
-50.0%
Non-oil Export
Non-oil Import
Source: GAS, Al Rajhi Capital
Source: GAS, Al Rajhi Capital
Saudi International Bond Yields Saudi International bond yields rose on a MTD basis.
Saudi International bond yields with 5 year maturity rose by 12.6bps MTD in September 2017 to 2.688%, while bond yields with 10 and 30 year maturities increased 23.8bps and 14.7bps, respectively to 3.411% and 4.451%. Figure 25 International Bond Yields 6.0% 5.0% 4.0% 3.0%
2.0% 1.0%
30 Yr
10 Yr
27-Sep-17
7-Sep-17
17-Sep-17
28-Aug-17
8-Aug-17
18-Aug-17
29-Jul-17
9-Jul-17
19-Jul-17
29-Jun-17
9-Jun-17
19-Jun-17
30-May-17
20-May-17
30-Apr-17
10-May-17
20-Apr-17
10-Apr-17
31-Mar-17
21-Mar-17
1-Mar-17
11-Mar-17
9-Feb-17
19-Feb-17
30-Jan-17
20-Jan-17
10-Jan-17
31-Dec-16
21-Dec-16
1-Dec-16
11-Dec-16
21-Nov-16
1-Nov-16
11-Nov-16
22-Oct-16
0.0%
5 Yr
Source: Bloomberg, Al Rajhi Capital
Disclosures Please refer to the important disclosures at the back of this report.
9
Economic Research Monthly Economic Report October 2017
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, 40 Wall Street 59th 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.
Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication.
Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months.
Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither Al Rajhi nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report. Al Rajhi may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of Al Rajhi. Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States. The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments. Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by Al Rajhi with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein. No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior consent of Al Rajhi and Al Rajhi accepts no liability whatsoever for the actions of third parties in this respect. 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.
Disclosures Please refer to the important disclosures at the back of this report.
10
Economic Research Monthly Economic Report October 2017
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.
Contact us Mazen AlSudairi Head of Research Tel : +966 1 211 9449 Email: [email protected] Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh 11432 Kingdom of Saudi Arabia Email: [email protected] Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 07068/37.
Disclosures Please refer to the important disclosures at the back of this report.
11
