Mubasher: After the recent announcements of the planned OPEC production cut, JASTA (Justice Against Sponsors of Terrorism Act) and reduction in the Saudi public sector employees’ allowances, Al Rajhi Capital believes that the earnings in the third quarter of 2016 is likely to be lower.
Investor focus will be more on long term implications of these major announcements and Saudi Government’s budget which is expected towards end of December, the research firm said in a recent report.
The budget announcement will be keenly watched this year as many of the reform measures were announced last year along with the budget. Nevertheless, Al Rajhi Capital still believes that Q3 will provide more clarity on earnings direction, and impact of lower subsidies and increase in energy prices on various sectors.
“After the sharp 7.2% decline in two days following reduction in allowances for public sector employees, we believe investors could be wary due to possibility of further measures, as well as short to medium implications of the ongoing reform measures in spite of lower valuations”.
The surprise OPEC deal has buoyed short term sentiments on oil but details will be announced only in November to see if that will materially change the current oversupply in the oil market, said the report.
On the brighter side, this quarter will see the seasonal benefit of the Hajj pilgrimage season on some sectors.
“Overall, while there may not be convincing upside triggers for the market, we continue to prefer large caps that are likely to benefit from national transformation plan in the long term,” it added.
