Business to gradually return by Q3 2020, government spending to decline: Riyad Cap

Business is expected to gradually return in the second and third quarter of 2020, Riyad Capital’s chief investment officer, Hans Peter, commented on the closing of commercial activities in Saudi Arabia during a virtual seminar attended by Argaam.

He further added that non-oil GDP would witness a decline of about 3.1%, while the private sector is projected to fall by nearly 4% in 2020, indicating that the impact will start to fade next year.

The government spending in Saudi Arabia is also expected to decline by nearly SAR 70 billion, given that the estimated spending is valued at about SAR 1.02 trillion in 2020.

Peter affirmed that the Public Investment Fund (PIF) will play a vital role in mitigating financial impacts by boosting capital spending locally.

“The budget deficit would rise to 14.6% of GDP in 2020 from 4.4% a year earlier, with an expectation to decline once again in 2021 to 7.3%,” he mentioned.

On oil prices level, Peter said that prices are likely to remain low during Q2 2020, with a gradual recovery in the second half of 2020.

Meanwhile, he remained cautious about Tadawul’s outlook in 2020, with a recovery probability by the beginning of 2021, indicating that the expected weakness may provide purchasing opportunities in the stock market, especially in banks, consumer goods, and telecom.

On the other side, Peter suggested to avoid investing in petrochemical and retail stocks at present.

“In general, the companies’ profitability is predicted to be affected by the economic slowdown bottoming during 2020, and then go back up again in 2021 on the expected recovery,” he added.

Peter expects banking stocks’ profitability to decline, driven by lower interest margin and credit volume, while being backed by continued strong mortgage lending.

“Petrochemicals will also be negatively affected as a result of low oil prices and the global closure of commercial activities,” he stated.

Similarly, the energy section will be affected by lower oil prices and the retreat in production volume in 2020, he continued, adding that construction and cement sections will be affected by the reduction in government spending.

“However, PIF projects may reduce the impact on these sectors,” Peter said.

On the other hand, telecom stocks’ profitability will be supported by higher demand of voice calls and data on the back of social distancing during the last period, he highlighted.