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Interest Rate Cut Boosts Corporate Revenues in Saudi Stock Market

The interest rate cut will positively affect the Saudi stock market. (AFP)
The interest rate cut will positively affect the Saudi stock market. (AFP)
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Interest Rate Cut Boosts Corporate Revenues in Saudi Stock Market

The interest rate cut will positively affect the Saudi stock market. (AFP)
The interest rate cut will positively affect the Saudi stock market. (AFP)

Economic analysts predict that the recent 50-basis-point interest rate cut will positively impact the Saudi stock market by boosting liquidity, attracting more investors, increasing trading volumes and stock prices, and encouraging higher spending and consumption. These factors are expected to drive up sales and revenues for listed companies.

Analysts also suggest that the effect will become more pronounced with further rate cuts in the coming period. Sectors such as banking, financial funds, retail, hospitality, food, and companies with long-term loans are likely to benefit the most, with the impact expected to show in the financial results of listed companies during the fourth quarter of 2024 and the first quarter of 2025.

In comments to Asharq Al-Awsat, Mohammed Hamdy Omar, CEO of G World, stated that the interest rate cut will have a positive influence on the Saudi stock market both in the short and long term. In the short term, it will increase market liquidity, attracting more investors and boosting their confidence, leading to higher trading volumes and stock prices.

Additionally, the reduction in borrowing costs for consumers will stimulate spending and consumption, which will particularly benefit the retail, hospitality, and food sectors.

Omar added that in the long term, the interest rate cut will promote economic growth across many sectors by making borrowing cheaper for businesses and individuals.

He explained that the positive effects are expected to become visible in the financial results of listed companies starting from the fourth quarter of 2024, as the benefits of lower rates begin to materialize. These effects should be fully reflected in the first quarter of 2025, provided that interest rates continue to decline.

Omar noted that sectors like real estate, construction, manufacturing, and finance would benefit the most from lower interest rates, as it will reduce borrowing costs and improve their competitiveness. Moreover, sectors that rely on long-term contracts requiring bank financing will also gain from the lower borrowing costs.

Mohammed Al-Sagheer, a financial markets analyst, shared a similar outlook, describing the interest rate cut as positive for the stock market both in the short and long term. He explained that while the immediate impact of a 50-basis-point cut may be modest, its effects will become more significant as the rate is reduced multiple times.

Al-Sagheer suggested that at least four or five rate cuts would be necessary for the full benefits to emerge.

He also emphasized that successive interest rate reductions would attract foreign investment, increase cash flows into the stock market, boost trading volumes and values, and support the growth and revenues of listed companies. Furthermore, lowering financing costs would reduce corporate expenses, leading to higher profits.

Al-Sagheer pointed out that sectors like financial firms, investment funds, and companies with long-term loans would be most affected by the interest rate cuts. He expected the positive impact to gradually appear in the financial results of companies starting from the fourth quarter of 2024 and continuing into the first quarter of 2025.

Obaid Al-Muqati, another financial markets expert, told Asharq Al-Awsat that the rate cut comes after 11 consecutive increases over the past four-and-a-half years.

He noted that the Saudi stock market index was not significantly affected by the early rate hikes, continuing its upward trend and reaching a peak of 13,949 points in mid-2022. However, the market later entered a correction phase, dropping to a low of 9,930 points at the end of 2022 and the beginning of 2023.

Al-Muqati stated that the effects of the interest rate cuts would not be immediate, but would unfold in gradual, fluctuating waves. Nevertheless, he expects the overall impact to be positive and stimulating for the market, aligning with the anticipated market growth.

He predicted that sectors such as petrochemicals, banking, cement, and retail would respond positively to the rate cuts and that the Saudi market would increasingly attract foreign, Gulf, and resident investors.

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US Economy Grew at Solid 3% Rate Last Quarter, Government Says in Final Estimate

FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
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US Economy Grew at Solid 3% Rate Last Quarter, Government Says in Final Estimate

FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)
FILE - The New York Stock Exchange, at rear, is shown on Sept. 24, 2024, in New York. (AP Photo/Peter Morgan, File)

The American economy expanded at a healthy 3% annual pace from April through June, boosted by strong consumer spending and business investment, the government said Thursday, leaving its previous estimate unchanged.
The Commerce Department reported that the nation's gross domestic product — the nation's total output of goods and services — picked up sharply in the second quarter from the tepid 1.6% annual rate in the first three months of the year, The Associated Press reported.
Consumer spending, the primary driver of the economy, grew last quarter at a 2.8% pace, down slightly from the 2.9% rate the government had previously estimated. Business investment was also solid: It increased at a vigorous 8.3% annual pace last quarter, led by a 9.8% rise in investment in equipment.
The final GDP estimate for the April-June quarter included figures showing that inflation continues to ease, to just above the Federal Reserve’s 2% target. The central bank’s favored inflation gauge — the personal consumption expenditures index, or PCE — rose at a 2.5% annual rate last quarter, down from 3% in the first quarter of the year. Excluding volatile food and energy prices, so-called core PCE inflation grew at a 2.8% pace, down from 3.7% from January through March.
The US economy, the world's biggest, displayed remarkable resilience in the face of the 11 interest rate hikes the Fed carried out in 2022 and 2023 to fight the worst bout of inflation in four decades. Since peaking at 9.1% in mid-2022, annual inflation as measured by the consumer price index has tumbled to 2.5%.
Despite the surge in borrowing rates, the economy kept growing and employers kept hiring. Still, the job market has shown signs of weakness in recent months. From June through August, America's employers added an average of just 116,000 jobs a month, the lowest three-month average since mid-2020, when the COVID pandemic had paralyzed the economy. The unemployment rate has ticked up from a half-century low 3.4% last year to 4.2%, still relatively low.
Last week, responding to the steady drop in inflation and growing evidence of a more sluggish job market, the Fed cut its benchmark interest rate by an unusually large half-point. The rate cut, the Fed’s first in more than four years, reflected its new focus on shoring up the job market now that inflation has largely been tamed.
Some other barometers of the economy still look healthy. Americans last month increased their spending at retailers, for example, suggesting that consumers are still able and willing to spend more despite the cumulative impact of three years of excess inflation and high borrowing rates. The nation’s industrial production rebounded. The pace of single-family-home construction rose sharply from the pace a year earlier.
And this month, consumer sentiment rose for a third straight month, according to preliminary figures from the University of Michigan. The brighter outlook was driven by “more favorable prices as perceived by consumers” for cars, appliances, furniture and other long-lasting goods.
A category within GDP that measures the economy’s underlying strength rose at a healthy 2.7% annual rate, though that was down from 2.9% in the first quarter. This category includes consumer spending and private investment but excludes volatile items like exports, inventories and government spending.
Though the Fed now believes inflation is largely defeated, many Americans remain upset with still-high prices for groceries, gas, rent and other necessities. Former President Donald Trump blames the Biden-Harris administration for sparking an inflationary surge. Vice President Kamala Harris, in turn, has charged that Trump’s promise to slap tariffs on all imports would raise prices for consumers even further.
On Thursday, the Commerce Department also issued revisions to previous GDP estimates. From 2018 through 2023, growth was mostly higher — an average annual rate of 2.3%, up from a previously reported 2.1% — largely because of upward revisions to consumer spending. The revisions showed that GDP grew 2.9% last year, up from the 2.5% previously reported.
Thursday’s report was the government’s third and final estimate of GDP growth for the April-June quarter. It will release its initial estimate of July-September GDP growth on Oct. 30.