Global markets plunge on trade jitters, Saudi market ‘resilient’: Analysts

Global financial markets plummeted as fears of a full-scale trade war escalated, in light of the tariffs imposed by the US administration led by President Donald Trump, which was met with similar responses from China, thus fueling risk aversion among investors and increasing the chances of the global economy entering a recession.
 

A number of analysts told Argaam that the market reactions were justified in light of these tensions, highlighting that the state of uncertainty pushed markets to large-scale sell-off wave, especially in Asian markets that are more sensitive to exports.
 

The analysts also believe that the Saudi market showed relative resilience despite the global woes, expecting the volatility to continue in the coming period until the path of trade negotiations between the major powers becomes clearer.
 

US tariffs trigger global market turmoil
  

Tarek Al Rifaie, CEO of Quorum Center for Strategic Studies

The US administration's 10% tariffs on trade partners and China's response of 34% tariffs on US imports caused a sharp sell-off in global markets, said Tarek Al Rifaie, CEO of Quorum Center for Strategic Studies.
 

The near-term outlook for the stock market remains uncertain. Indices such as the Nasdaq may record temporary rebounds after entering bear market territory, but remain vulnerable to extended volatility, he added.
 

Al Rifaie also said that it is better to be cautious, focus on risk management, and prioritize long-term investment, he said.

US economic slowdown and trade tensions
 

Ahmed Shamsuddin, Head of Research at EFG Hermes

Ahmed Shamsuddin, Head of Research at EFG Hermes, said that the reaction of global markets to the trade tensions was justified, especially in light of increasing indications of a slowdown in the US economy since the end of 2023, noting that consumption indicators such as car sales, building materials, and restaurants fell during the months of December, January, and February compared to the same period last year.
 

The slowdown is normal within an economic cycle that takes between five to seven years, said the analyst, adding that financial markets usually do not respond unless there is a "catalyst" such as trade escalation, which led to violent reactions, especially in Asian markets.
 

“The biggest impact was on countries that rely heavily on exports such as South Korea and Taiwan, whose exports represent more than 50% of GDP, while China's dependence on the US market fell from more than 35% to about 17-18%,” said Shamsuddin.
 

He added that the Saudi market is starting to show some signs of recovery, but the state of volatility may continue for a week or ten days, until the path of trade negotiations is clear, adding that it is expected to reach understandings, as continued tension is not in the interest of any party. 
 

Direct Impact on the Saudi Market and Investors
 

Hussein Al-Attas, a financial analyst

Hussein Al-Attas, a financial analyst, said that the Saudi market has become more vulnerable to global volatility after its inclusion in emerging market indices, noting that trade tensions have caused a decline in liquidity and sell-offs by foreign investors.
 

Moreover, local investors have tended to be cautious and move towards defensive sectors such as telecoms and healthcare, while foreign investors have reduced their exposure during periods of peak trade tensions.
 

“Meanwhile, the energy and petrochemical sectors were among the most affected, as a result of the slowdown in global demand and the decline in product prices, which affected companies such as SABIC, Saudi Kayan, and Petrochem. This was in addition to the impact of the slump in oil prices due to the slowdown in the Chinese economy and the increase in supply,’ said Al-Attas.
 

He also stated that weak global demand resulting from the trade war between the US and China has also led to a re-pricing of growth expectations in the petrochemical sector, which has negatively impacted investor valuations of these companies.
 

Al-Attas emphasized that the TASI benchmark index showed signs of correction waves in line with global markets, amid its continued correlation with external news, expecting continued volatility in the event of continued escalation or negative economic data from major countries.

Foreign Investor Trends: Increasing Caution Despite the Upgrade
 

Al-Attas added that although the Saudi market remains supported by domestic factors such as government spending and economic reforms, the correlation with global markets has become more evident after the upgrade to emerging market indices.
 

The trade war has fueled foreign investor hesitation toward emerging markets, said the analyst, noting that the Saudi market, despite its inclusion to the MSCI and FTSE indices, continues to experience fluctuations in foreign inflows.
 

He also indicated that foreign investors are now more inclined to reallocate their investments away from markets highly exposed to trade conflicts.

The Impact of US Policies on Budget and Debt
 

Shams El-Din pointed out that the US economy faces structural challenges related to the sustainability of public debt service, especially in light of rising interest rates and current debt levels in the G7 countries.
 

He indicated that the equivalent of 3.5% of the US GDP is needed to balance the budget, which requires either a radical change in the tax structure or a significant reduction in spending, adding that the tax cuts pursued by the Trump administration may not effectively contribute to bridging the fiscal gap.
 

The analyst also emphasized that these challenges create significant pressure on monetary policy, noting that lowering interest rates may be necessary to stimulate the US economy, but that it would, in turn, deepen the public debt crisis.
 

Limited Impact on GCC Countries, but with Financial Pressures
 

The impact of the global slowdown on Gulf countries will likely be indirect, through the decline in oil prices, which may put pressure on public budgets, especially in Saudi Arabia and Kuwait, said Shamsuddin.
 

“Saudi Arabia may face financing pressures if oil prices remain at low levels.

However, the Kingdom remains in a strong financial position, with a debt-to-GDP ratio of less than 30%, which gives it the resilience needed for borrowing to finance its projects,” he said.
 

The analyst also pointed out that Saudi Arabia needs to activate the debt market as part of its plans to finance infrastructure projects and economic diversification programs, noting that the current market size does not exceed 3-4% of GDP, while it should be between 12-15%.
 

He added that debt levels rising to 50-60% of GDP is not a major threat given the strength of the Kingdom's financial position, stressing the importance of developing the local debt market as a means of providing liquidity and promoting private sector growth, especially SMEs.

 

Continued Momentum of Saudi Reforms & Promising Investment Opportunities
 

The economic reform programs in Saudi Arabia are a strategic necessity rather than an option, said Shamsuddin, pointing out that the Kingdom's economic transformation is driven by demographic factors, including the high percentage of youth and the increased participation of women in the labor market.
 

The real estate sector in Saudi Arabia represents a huge opportunity for growth, with the country needing more than one million additional housing units by 2030, with major government projects such as ROSHN and Al Jadiyah only covering half of this need, he added.
 

The analyst also noted that the real estate market is still at an early stage, as there is no real secondary market for real estate, which opens the door to long-term investment opportunities.
 

As for the promising sectors, Saudi banks are enjoying strong growth and high returns on capital of 10-15% and are currently undervalued, making any price declines a buying opportunity, he stated.
 

“The utilities sector is also stable and promising,” the analyst said, calling for a focus on diversification within the market and increasing institutional investments, including non-bank finance, which will play a bigger role in the future in addressing the financing challenges resulting from oil price fluctuations. 
 

Trade Negotiations: Cautious Optimism and Expectations of Easing Tensions
 

Shamsuddin said that the next phase is likely to witness partial understandings or temporary settlements on the level of trade tensions, noting that the continuation of the trade dispute between the US and China without an agreement has profound negative effects on the global economy.
 

In addition, markets are waiting for signs of progress in the negotiations. What is currently happening is a “trigger" or a catalyst for market movement, as markets resort to these critical points to start waves of correction or repricing, according to Shamsuddin.
 

He indicated that the US administration is seeking to exert implicit negotiating pressure, but this approach is unlikely to continue in the long term, given its high economic cost, especially with a clear slowdown in domestic economic indicators.
 

Furthermore, it is in the interest of all parties to reach understandings that prevent global markets from a deeper crisis, said Shamsuddin. "We may see positive news or partial understandings before major meetings, such as the one that will be held on the April 9, which may quickly reflect on the performance of the markets,” he added.