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Wednesday, 27 January 2021

Royal reshuffle boosts Saudi stock market; Egypt rebounds on tax compromise hopes

Reuters , Wednesday 29 Apr 2015
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Egyptian stock exchange in Cairo (Photo: AP)
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Saudi Arabia's stock market led gains in the Gulf on Wednesday after King Salman carried out major reshuffles in the line of succession and his cabinet. Egypt's bourse rebounded on hopes for good news about taxes.

The main Saudi index climbed 1.0 percent to 9,812 points. The benchmark rose above major technical resistance in the 9,572-9,745 point area, where the 200-day average roughly coincides with the March peak.

Blue chips Saudi Basic Industries and National Commercial Bank were the main supports, surging 4.7 percent each.

Salman appointed Interior Minister Mohammed bin Nayef as his new heir early on Wednesday and made his son, Defence Minister Mohammed bin Salman, second-in-line to succeed, setting the kingdom's succession in stone for decades and strengthening his branch of the dynasty.

The king also appointed Saudi Aramco chief executive Khalid al-Falih as health minister, and made labour minister Adel al-Fakieh economy and planning minister, replacing him with Mufrej al-Haqbani.

The economic policy significance of the changes is not yet clear but they were unexpected to many analysts. In the short term at least, they could increase uncertainty. However, many investors appeared to view the changes as a positive sign that the government would put fresh emphasis on stimulating economic growth.

"I don't think there will be a reversal of any policies - I see it as a fresh impetus" for economic reforms, said John Sfakianakis, Gulf region director at fund management firm Ashmore Group in Riyadh.

The move of the highly regarded Fakieh to the economy portfolio could mean labour reforms to push Saudis into private sector jobs over the past several years have essentially been judged a success, and that the government now wants to focus on other structural reforms of the economy, which have been slow.

Also on Wednesday, Salman ordered a one-month salary bonus for all military and security personnel to convey his "appreciation of their efforts" - a signal that the government remains willing to spend lavishly on its policy priorities.

Giyas Gokkent, senior Middle East and Africa economist at the Institute of International Finance, estimated the payout would be worth about 0.2 percent of Saudi Arabia's annual gross domestic product. This is a small amount in the context of the year's economic data, but it could buoy consumption this quarter; a bigger payout to all public sector employees boosted retailers' profits in the first quarter of 2015.

DUBAI, EGYPT

Dubai's stock index rose 0.8 percent to 4,215 points, approaching major chart resistance at 4,250 points, its 200-day average.

Conglomerate Dubai Investments jumped 3.7 percent to a six-month high of 3.10 dirhams ahead of its earnings announcement. After the market closed, the firm said its net profit for the first quarter had risen 6.5 percent on the back of real estate and manufacturing businesses.

Bourse operator Dubai Financial Market surged 4.3 percent after a pull-back earlier this week on poor first-quarter results. Trading volumes rose sharply in April and that may give investors hope that DFM's second quarter will be stronger.

Other markets were less bullish. Abu Dhabi inched up 0.1 percent and Qatar added 0.3 percent.

Doha-listed Barwa Real Estate surged as much as 5.1 percent in early trade, coming close to November's multi-year peak of 54.20 riyals, but then pulled back and closed 0.2 percent lower.

The firm on Wednesday posted a first-quarter profit of 3.2 billion riyals ($879.1 million), sharply up from 265 million riyals a year earlier, but the surge may have been due to a one-off factor such as land sales reported in December.

Egypt's index rose 1.9 percent to 8,488 points in a broad rally on hopes that the government would review its approach towards taxing stock market investors.

Egyptian investors challenged the government in court on Tuesday over a tax on stock dividends and capital gains introduced this month, saying it was causing confusion and hampering investment.

On Wednesday, Mohamed Maher, vice president of the Egyptian Association for Financing and Investment Studies, which had helped file the lawsuit, told Reuters that he and other stock market lobbyists had met senior government officials and submitted proposals on how to amend the tax laws.

He said the group had proposed replacing the capital gains tax with a stamp duty on stock purchases. It is unclear whether the proposal will be accepted, but Wednesday's bounce suggested technical support at the December low of 8,125 points was a strong floor for the index.

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