Saudi Arabia's stock market fell sharply on Wednesday with all its banking shares dropping as receding fund inflows dampened investor appetite on a day when second phase of Saudi stocks joined the MSCI emerging markets index.
EFG Hermes said in a note on Wednesday the investment case for Saudi banks is no longer 'compelling' in their view on the backdrop of receding passive flows, rates becoming a headwind, and the emergence of credit quality concerns.
"We think Saudi can drift lower, before finding a support above the 8k mark. Stock picking would be the name of the game hereon and companies that deliver good results shall outperform the broader Index," said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital.
Sixty percent of fund mangers said they would decrease their investments in Saudi Arabia, displaying bearishness that has carried over from last month.
The Saudi index declined 1.4% with Al Rajhi Bank losing 2% and the country's largest lender National Commercial Bank decreasing 2.4%.
A second batch of Saudi shares was added to the MSCI emerging markets index on Wednesday after the country's stocks were first included in the index in May.
"Saudi Arabia has attracted $18 billion in foreign portfolio equity inflows so far this year, as foreign investors have significantly increased their exposure to Saudi equities ahead of upgrade," the Institute Of International Finance (IIF) said in a note.
IIF added that inflows to Saudi Arabia would have been even higher if not for concerns about global trade and the escalation of regional tensions.
Egypt's blue-chip index surged 2.2%, to reach its highest level since May, as most of its shares traded in green territory. Commercial International Bank jumped 4.3% and EFG Hermes was up 6.3%.
Middle Eastern funds plan to increase their investments in Egypt and UAE and decrease allocations in Saudi Arabia, while keeping their exposure to other countries in the region at current levels, according to a Reuters poll.
In Dubai, the index added 0.2% with blue-chip developer Emaar Properties increasing 1%.
Qatari index and Abu Dhabi's index traded flat. In the previous session the duo had risen 2.5% and 2.7% respectively.
"It is interesting that both UAE & Qatar saw net foreign inflows yesterday, when the MSCI rebalancing lowered the weights of these markets," Bhandari said.