Saudi Arabian Economy

Transcription

1 Saudi Arabian Economy Research Department ARC Research Team, Tel , Saudi Arabian economy continued to expand in Q3 Saudi Arabian economy has continued to expand for the third straight quarter in 2018 with Q GDP increasing at the fastest pace since early 2016, driven by improvement in the oil sector (accounting ~65% of Q3 GDP expansion) on higher oil prices. Further, the non-oil sector also aided the economic expansion in Q3, albeit at a slower pace, led by the financial services, manufacturing and government services segments. However, the construction sector continued to remain sluggish in Q3, owing to muted capital spending by the government. Nonetheless, we believe that the expansionary fiscal policy for 2019, as announced by the government, will result in pick-up in the non-oil sector in coming quarters. Monthly Indicators: Meanwhile, as per the latest monthly economic data released by SAMA, the Kingdom s economic indicators also showcase a continuous improvement despite weak global sentiments due to the sluggish Chinese economic data along with the prevailing US-China trade concerns. However, China continues to import oil at a healthy rate. Kingdom s credit to the private sector rose for the ninth consecutive month (+2.9% y-o-y; -0.8% m-o-m) in December, while credit to the public sector also registered a rise (+16.9% y-o-y; +0.4% m-o-m). Further, consumer spending has continued to increase in December, as indicated by improvement in POS transactions (+10.4% y-o-y; +12.4% m-o-m) and ATM cash withdrawals (-0.2% y-o-y; +7.1% m-o-m). Moreover, SAMA foreign reserves remained broadly stable (flat y-o-y; -1.5% m-o-m), on an annual basis, in December. Kingdom has sufficient foreign reserves to plug the fiscal deficit and with low debt to GDP ratio (~20% in 2018; Source: IMF) the country has enough room to issue additional debt, implied by the recent issuance of international bonds worth US$7.5bn. Meanwhile, Saudi unemployment rate fell to 12.8% in Q (12.9% in Q2), whereas the Saudi labor force participation rate remained steady at 42.0% in Q We believe that the government s efforts to increase investments (including NIDLP, Future Investment Initiative, among others) in the private sector should create more jobs and improve employment rate among Saudi nationals in the near term. Further, we also believe that the oil prices are not sustainable at these levels and are likely to improve. To summarize, with the government s commitment to support the economy and the possible rise in oil prices, the Saudi Arabian economy is on the trajectory of improvement. The National Industrial Development and Logistics Program (NIDLP) launched by the Kingdom aims to attract investments worth around SAR1.6tn (US$426bn) and create around 1.6mn new jobs in the next 10 years. IMF lowered Saudi Arabia s 2019 GDP growth forecast to 1.8% from 2.4% projected earlier, on the back of Kingdom s decision to slash its oil production. Meanwhile, the IMF believes that the country s increase in budgetary spending will provide an impetus to the non-oil economy. Further, the IMF increased next year s forecast to 2.1% (+1.9% earlier). Kingdom raised US$ 7.5bn via international bond sale. The government sold US$4bn 10-year bonds and US$3.5bn of 31-year bonds. The international issuance received orders of around US$27.5bn. Please see penultimate page for additional important disclosures. Al Rajhi Capital (Al Rajhi) is a foreign broker-dealer unregistered in the USA. Al Rajhi research is prepared by research analysts who are not registered in the USA. Al Rajhi research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities, an SEC registered and FINRA-member broker-dealer.

2 Kingdom s Q GDP figures showed that the economy expanded 2.5% y-o-y (+1.6% y- o-y in Q2), supported by the expansion in the oil sector (+3.6% y-o-y in Q3 Vs +1.3% y-o-y in Q2) due to higher oil prices. However, the non-oil sector expanded at a slower pace (+2.1% y- o-y Vs +2.4% y-o-y), weighed down by the slower rise in Manufacturing and Finance, Insurance, Real Estate & Business Services segments (Figure 2 & 3). Q labor data indicated that the total unemployment rate registered a reading of 6.0% same as that in the previous quarter, whereas the Saudi unemployment rate fell to 12.8% in Q (+12.9% in Q2 2018). Meanwhile, the average monthly wages of Saudi nationals grew by 2.3% q-o-q in Q (+1.5% q-o-q in Q2); while the Saudi labor force participation rate remained steady at 42.0% for the same period (Figure 4 & 5). Real Estate Price Index dropped 5.0% y-o-y in Q as against the fall of 3.1% y-o-y in the previous quarter. The residential property prices declined at a faster pace (-6.0% y-o-y in Q Vs -3.7% y-o-y in Q3 2018). Meanwhile, the commercial (-3.1% y-o-y Vs -2.1% y-o-y) and agricultural (-0.3% y-o-y Vs -0.3% y-o-y) property prices also witnessed a drop (Figure 6). Saudi Arabia s Current Account Balance recorded a surplus in Q to stand at $30.0bn, as against $19.0bn in the previous quarter; driven by higher exports, which has witnessed a rise over recent quarters (Figure 7 & 8). SAMA foreign reserves on an annual basis, remained broadly unchanged in December, compared to the rise of 2.0% y-o-y in November. On a monthly basis, reserves dropped 1.5% in December (Figure 13 & 14). Meanwhile, government reserves with SAMA stood at SAR 562.4bn (including government current account) as of December, registering a monthly fall of 1. Deposits rose 2.6% y-o-y (+2.3% m-o-m) in December, while credit to the private sector climbed 2.9% y-o-y (-0.8% m-o-m) in the same month. Meanwhile, for Q4 2018, the private sector credit rose by 2.8% y-o-y (-0.3% q-o-q). Credit to the Manufacturing & Processing and Building & Construction sectors witnessed an annual rise in Q4 2018; whereas credit to Commerce sector recorded a drop (y-o-y basis) in the same quarter (Figure 15, 16, 17 & 18). Banking sector profits increased by 51.1% y-o-y to stand at SAR 3,918mn in December (+4.4% y-o-y in November). The cumulative banking sector profits for the year 2018 stood at SAR 48,337mn, recording a rise of 10.7% y-o-y (Figure 22). Money Supply (M3) rose in December to SAR 1,841bn, supported by the rise in M1. Meanwhile, as per the weekly money supply data, published by SAMA, M3 may witness a drop in January (Figure 19). Point-of-sale (POS) transactions rose 10.4% y-o-y in December (+18.0% y-o-y in November), backed by Restaurants and Hotels (+55.4% y-o-y), Food and Beverage (+16.1% y-o-y) and Transportation (+3.8% y-o-y) segments. However, ATM transactions fell 0.2% y- o-y in December (+1.7% y-o-y in November) (Figure 10, 11 & 12). Remittances (Personal Transfers) by Saudi nationals dropped by 25.2% y-o-y in December, compared to the fall of 39.5% y-o-y in November, while remittances by non-saudi nationals slipped 19.5% y-o-y in the same month (-17.6% y-o-y in November) (Figure 9). Cost of living index rose at a slower pace of 2.2% y-o-y in December, compared to the rise of 2.8% y-o-y in November. The fall in Housing, Water, Electricity & Gas (-5.1% y-o-y), which accounts 25.4% of the index, weighed on the index. On a monthly basis, the index fell 0.3% in December, same as that in the previous month (Figure 23 & 24). Disclosures Please refer to the important disclosures at the back of this report. 2

3 Crude oil prices (Brent March futures contract) gained 13.6% MTD in January, owing to fresh optimism over progress in the US-China trade talks. Further, reports suggesting a drop in crude oil production by major producers also aided the prices. Meanwhile, Saudi Arabia s crude oil production fell by 3.8% m-o-m, to 10.7 mbpd in December 2018; versus the rise of 3.7% m-o-m in November (Figure 25 & 26). Crude price outlook: The US Energy Information Administration (EIA) in its January 2019 report estimated Brent crude oil prices to average US$61/barrel for 2019 and US$65/barrel for Figure 1 Key macro indicators Variable Jan-19 Dec-18 Nov Inflation Rate (2007=100) % - 2.2% 2.8% 2.5% -0.8% Jan-19 Dec-18 Nov Average Oil Price (Arab Light) (US$/Barrel) Jan-19 Dec-18 Nov Money Supply (M3) % - 2.8% 1.9% 2.8% 0.2% Total Banking Sector Claims Interbank Interest Rate (3 Month) % Repo Rate % Reverse Repo Rate % Q3 2018* Q2 2018* * 2016 GDP Rate at Constant Prices (2010=100) % - 2.5% 1.6% -0.9% 1.7% Q3 2018** Q1 2018* * 2016 Current Account to GDP Ratio (current prices) % % 9.8% 1.5% -3.7% Total Imports (fob) to GDP Ratio (current prices)% % 16.7% 18.0% 19.8% Non-oil Exports to GDP Ratio (current prices) % - 7.4% 8.2% 7.5% 7.4% Source: SAMA, Bloomberg * Provisional. Arab Light and Interbank interest rate data is as on 25 th January 2019 and 27 th January 2019, respectively. Kingdom s GDP rose at the fastest pace in Q3 2018, since Q Gross Domestic Product Kingdom s Q GDP rose by 2.5% y-o-y (+1.6% y-o-y in Q2 2018), supported by the expansion in the oil sector (+3.6% y-o-y Vs +1.3% y-o-y in Q2 2018) due to higher oil prices. Meanwhile, the non-oil sector recorded a rise of 2.1% y-o-y (+2.4% y-o-y in Q2 2018), backed by the Finance, Insurance, Real estate and Business services (9.5% share in GDP; +3.9% y- o-y rise) and the Manufacturing (12.2% share in GDP; +1.7% y-o-y) segments. However, the Construction (4.4% share; -3.6% y-o-y) segment has remained sluggish due to muted government spending. Figure 2 Quarterly GDP Trend (y-o-y growth) Real GDP by type of economic activity Share in GDP Q Q Q Q4 Agriculture, Forestry & Fishing 2.3% 0.1% 0.1% 0.3% Mining & Quarrying 40.7% 4.2% 1.7% 0.8% -4.8% Manufacturing 12.2% 1.7% 3.2% 3.3% 0.8% Electricity, Gas and Water 2.3% 4.4% -0.1% 1.1% 0.5% Construction 4.4% -3.6% -3.2% -2.4% -3.5% Wholesale & Retail Trade, Restaurants & hotels 9.0% 0.9% -0.5% -0.5% 1.4% Transport, Storage & Communication 5.7% 4.9% -0.5% -1.6% 1.7% Finance, Insurance, Real Estate & Business Services 9.5% 3.9% 4.2% 2.1% 0.8% Community, Social & Personal Services 1.9% 0.8% 1.4% 1.5% 1.5% Producers of Government Services 12.2% 1.6% 4.8% 3.4% 3.2% Gross Domestic Product % 1.6% 1.2% -1.2% Disclosures Please refer to the important disclosures at the back of this report. 3

4 Figure 3 Real GDP trend at constant prices (y-o-y) 15.0% 8.0% 6.0% 1 3.3% 4.0% 5.0% 2.9% 2.6% 0.3% 0.7% 2.1% 2.0% 6.0% 4.1% 4.0% -2.1% 0.2% 0.6% 8.1% 6.2% 6.1% 6.0% 0.6% 0.3% 2.4% 4.1% 4.4% -1.9% 0.4% 2.3% 1.3% 1.6% -0.6% 0.6% 1.3% -0.3% -1.5% -4.1% -4.3% 3.6% -2.0% -4.0% -6.0% -5.0% Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q % Oil Sector Non-Oil Sector GDP (RHS) Saudi unemployment dropped in Q Labor market update Saudi unemployment rate fell to 12.8% in Q3 2018, compared to 12.9% in Q2 2018; whereas overall unemployment in the Kingdom recorded the reading of 6.0% in Q same as that in the previous quarter. Meanwhile, the average monthly wages of Saudi nationals increased by 2.3% q-o-q to SAR 10,472, while the overall monthly wages rose by 0.5% q-o-q to SAR 6,267. Further, the Saudi labor force participation rate was 42.0% in Q3 2018, same as that in Q2; while the non-saudi labor force participation rate grew to 75.7% in Q (75.5% in Q2 2018). Figure 4 Unemployment Figure 5 Average monthly wages in the Kingdom (SAR) 13.5% 13.0% 12.5% 12.0% 11.5% 11.0% 5.7% 11.7% 11.5%11.6% 5.7% 5.6% 5.6% 5.6% 12.7% 12.8%12.8%12.8% 12.9% 12.8% 12.9% 6.0% 6.0% 6.0% 12.3% 6.0% 12.1% 5.8% 5.8% 6.1% 6.2% 6.1% 6.0% 5.9% 5.8% 5.7% 5.6% 5.5% 5.4% 6,500 6,400 6,300 6,200 6,100 6,000 5,900 5,800 5,700 9,447 5,937 9,707 6,099 10,031 10,271 10,462 10,045 6,411 6,413 6,384 6,303 9,884 9,911 10,012 9,939 5,959 10,089 10,472 10,238 6,195 6,210 6,235 6,267 6,119 6,093 10,600 10,400 10,200 10,000 9,800 9,600 9,400 9,200 9, % Q Q Q Q1 Q2 Q3 Q4 Q Q Q % 5,600 H1 H2 H1 H2 H1 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q ,800 Saudi unemployment rate Total unemployement rate (RHS) Total Saudis (RHS) Disclosures Please refer to the important disclosures at the back of this report. 4

5 Real Estate Price Index declined in Q Real Estate Price Index According to the data released by GASTAT, real estate prices fell by 5.0% y-o-y in Q4 2018, as against the drop of 3.1% y-o-y in the previous quarter. The residential (-6.0% y-o-y in Q Vs -3.7% y-o-y in Q3 2018) and the commercial (-3.1% y-o-y Vs -2.1% y-o-y) property prices declined at a faster rate in Q However, agricultural (-0.3% y-o-y) property prices fell at the same pace. Figure 6 Real Estate Price Index General Index Residential Commercial Agricultural Q Q Current account recorded a surplus in Q Balance of Payments As per the Q data released by SAMA, the current account balance recorded a surplus of US$30.0bn compared to US$19.0bn in Q Current account surplus in Q was backed by higher exports, which has witnessed a steady rise for the past few quarters. Meanwhile, the imports registered a drop in Q compared to that in Q Figure 7 Current Account Balance 50 USD bn Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Current Account Balance Disclosures Please refer to the important disclosures at the back of this report. 5

6 Figure 8 Breakdown of Current Account Balance USD bn Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Remittances Income Exports Imports Current Account Balance Remittances continued to fall in December Remittance Remittances (Personal Transfers) from Saudi nationals declined 25.2% y-o-y (-39.5% y-o-y in November) to ~SAR 4.5bn in December 2018, while remittances from non-saudi nationals dropped by 19.5% y-o-y (-17.6% y-o-y in November) to stand at SAR 19.5bn. Figure 9 Remittances SAR mn Saudi Non-Saudi Saudi y-o-y change (RHS) Non Saudi y-o-y change (RHS) POS transactions registered a rise in December Consumer spending indicators POS transactions rose by 10.4% y-o-y in December 2018 compared to the yearly rise of 18.0% in November, whereas the ATM cash withdrawals fell by 0.2% y-o-y in December (+1.7% y-oy in November). POS transactions growth can be attributed to the rise in Restaurants and Hotels (+55.4% y-o-y), Food and Beverage (+16.1% y-o-y) and Transportation (+3.8% y-oy) segments. Disclosures Please refer to the important disclosures at the back of this report. 6

7 Figure 10 Point-of-sale transactions (POS) trend Figure 11 ATM cash withdrawals trend SAR bn % SAR bn % % 20% % 30% 20% 10% % % % % % -20% - -20% - -30% POS YoY ATM Cash withdrawals YoY Figure 12 Points-of-sale transactions trend by sectors % YoY change 80.00% 60.00% 40.00% 20.00% 0.00% % % Transportation Rest. and Hotels Food & Beverages Cloth. and Footwear SAMA reserves remained unchanged in December SAMA Foreign Exchange Reserves SAMA Foreign Exchange reserves, on a yearly basis, remained broadly unchanged in December, compared to the rise of 2.0% y-o-y in the previous month, to stand at SAR 1,862bn (US$ 496.4bn). On a monthly basis, reserves dropped by 1.5% in December versus the reading of m-o-m in November. Meanwhile, investment in foreign securities were unchanged in December (same as that in November); while foreign currency and deposits abroad declined 4.4% m-o-m in December as against the fall of 0.2% m-o-m in November. Disclosures Please refer to the important disclosures at the back of this report. 7

8 Figure 13 Reserves assets SAR bn 3,000 2,500 2,000 1,500 1, % 1 5.0% -5.0% % -2 Figure 14 Major components of foreign assets SAR bn 2,000 1,800 1,600 1,400 1,200 1, Reserves Assets YoY (RHS) Foreign Currency & Deposits Abroad Investment in Foreign Assets Private sector credit fell on a monthly basis in December Credit and deposit growth Banking sector credit to the private sector dropped 0.8% m-o-m in December 2018 (+2.9% y- o-y), as against +0.4% m-o-m in the previous month (+2.3% y-o-y). Meanwhile, for Q the private sector credit rose 2.8% y-o-y (-0.3% q-o-q). The Manufacturing & Processing (+5.6%) and Building & Construction (+8.5% y-o-y) sectors rose in Q4 2018; whereas the Commerce (-10.3% y-o-y) sector recorded a fall in Q Claims on the public sector increased by 16.9% y-o-y (+0.4% m-o-m) in December 2018, compared to the rise of 17.5% y-o-y (+0.3% m-o-m) in the previous month. Meanwhile, deposits rose by 2.6% y-o-y in December (+2.3% m-o-m). Business and Individual deposits, which accounted for ~72% of the total deposit base, rose by 5.0% y-o-y (+3.0% m-o-m), whereas Government Entities deposits dropped 9.0% y-o-y (-2.1% m-o-m). Figure 15 Credit and deposit growth Figure 16 Loans to Deposits YoY % 1 5.0% -5.0% % 83.0% 82.0% 81.0% % 78.0% 77.0% 76.0% 75.0% 74.0% Deposits Credit Loan to Deposit Ratio Disclosures Please refer to the important disclosures at the back of this report. 8

9 Figure 17 Y-o-Y growth/decline in credit by sector Figure 18 Banking sector exposure by economic activity YoY change 30% 100% 25% 90% 20% 15% 10% 5% 0% -5% 80% 70% 60% 50% 40% 59% 59% 59% 58% 59% 59% 61% 61% 62% -10% 30% 21% 22% 22% 23% 23% 23% 20% 20% 20% -15% -20% Q Q Q Q Q Q1 Q2 Q3 Q4 Q Q Q Q % 10% 0% 7% 7% 7% 7% 6% 7% 7% 7% 7% 13% 13% 12% 12% 12% 11% 12% 12% 12% Q Q1 Q2 Q3 Q4 Q Q Q Q Manufacturing & Processing Building and Construction Commerce Manufacturing & Processing Building and Construction Commerce Others M3 rose in December Money supply Broader money supply (M3) rose in December (+2.8% y-o-y) to stand at SAR 1,841bn, versus the rise of 1.9% in November. M1 registered an increase of 3.9% y-o-y; while M2 rose by 2.3% y-o-y in December. On a monthly basis, the M3 grew 2.1% in December (+0.3% m-o-m in November). As per the weekly money supply data by SAMA, M3 may witness a fall in January. Figure 19 Money supply growth (y-o-y) Figure 20 Deposits break-up 25.0% % 1 5.0% -5.0% % SAR bn 1,200 1, % 25% 20% 15% 10% 5% 0% -5% -10% -15% M1 M2 M3 Time and Saving Deposits (LHS) Time and Saving Deposits (y-o-y) Demand Deposits (LHS) Demand Deposits (y-o-y) Banking sector profits increased in December Banking Sector Banking sector profits rose 51.1% y-o-y in December 2018 (+4.4% y-o-y in November), to stand at SAR 3,918mn, while the cumulative profits of the year 2018 stood at SAR 48,337mn (+10.7% y-o-y). On a monthly basis, banking sector profits increased 2.8% in December (- 8.4% m-o-m in November). Disclosures Please refer to the important disclosures at the back of this report. 9

10 Figure 21 Non-performing loans (%) Figure 22 Net Profit for Banks SAR mn 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1, , Nonperforming loans to total gross loans. Q data not released yet Cost of living index grew at a slower pace in December Inflation dynamics Cost of living index rose at a slower pace of 2.2% y-o-y in December 2018, as against the rise of 2.8% y-o-y in November. The Food & Beverage sector (constituting ~18.9% of the index) grew by 7.1% y-o-y (+7.6% y-o-y in November), while the Housing, Water, Electricity & Gas sector (accounting ~25.4% of the index) dropped by 5.1% y-o-y (-3.1% y-o-y in November). Meanwhile, on a monthly basis the cost of living index fell by 0.3% in December, same as that in the previous month. Figure 23 Inflation trend (y-o-y) 5.0% 4.0% 3.0% 2.0% 3.0% 2.9% 2.8% 2.5% 2.3% 2.1% 2.2% 2.2% 2.1% 2.4% 2.8% 2.2% 1.0% -1.1% -1.0% -2.0% -3.0% Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 General Index Disclosures Please refer to the important disclosures at the back of this report. 10

11 Figure 24 Inflation Segments Weights Dec-18 Dec-17 Change (y-o-y) General Index % Food & Beverages 18.9% % Tobacco 0.7% % Clothing & Footwear 6.2% % Housing, Water, Electricity and Gas 25.4% % Furnishings and Household Equipments 8.6% % Health 2.4% % Transport % Communication 8.5% % Recreation & Culture 3.4% % Education 4.2% % Restaurants and Hotels 6.1% % Miscellaneous Goods & Services 5.8% % Crude oil prices rose on a MTD basis in January Crude oil dynamics Crude oil prices (Brent March futures contract) gained 13.6% MTD in January 2019, due to fresh optimism over progress in the US-China trade talks. Further, reports suggesting a drop in crude oil production by major producers also aided the prices. Meanwhile, the Saudi Arabian crude oil production dropped 3.8% m-o-m, to 10.7mbpd in December 2018, compared to the monthly rise of 3.7% in November. On a yearly basis, the crude oil output rose 7.0% in December as against to the rise of 11.0% in November. Figure 25 Saudi crude oil production trend (mbpd) Figure 26 Crude oil prices trend (US$/bbl) % 1 8.0% 6.0% 4.0% 2.0% -2.0% -4.0% -6.0% -8.0% Source: Bloomberg, Al Rajhi Capital Saudi Crude oil production YoY growth Source: Bloomberg, Al Rajhi Capital Brent WTI Arab Light Non-oil exports rise in November Non-oil foreign trade Kingdom s non-oil exports grew for the third consecutive month in November 2018, by 8.4% y-o-y, as against the rise of 9.8% in October. The rise can be attributed to the increase in chemical products (+25.4% y-o-y) and plastics & rubbers (+12.1% y-o-y), together constituting 66.0% of total exports. Meanwhile, non-oil imports fell 8.5% y-o-y in November 2018, compared to the drop of 2.2% y-o-y in October. The fall was largely due to decline in imports of machinery & electrical (-16.5% y-o-y) and transport equipments (-4.6% y-o-y) together accounting 39.0% of the total imports. Meanwhile, China was the top export destination and the largest import country in November Disclosures Please refer to the important disclosures at the back of this report. 11

12 Figure 27 Non-Oil Exports Commodities (SAR mn) Sep-18 Oct-18 Nov-18 % y-o-y % m-o-m Plastics & Rubbers 6,332 6,873 6, % 1.1% Chemical Products 5,833 6,329 6, % 4.6% Ordinary Metals 1,441 1,454 1, % 14.9% Transport Equipments 1,415 1,550 1, % 3.7% Others 3,116 3,501 3, % 5.9% Total 18,137 19,707 20, % 4.3% Figure 28 Non-Oil Imports Commodities (SAR mn) Sep-18 Oct-18 Nov-18 % y-o-y % m-o-m Machinery & Electricals 8,549 9,443 7, % -17.4% Transport Equipments 5,654 7,844 6, % -14.5% Ordinary Metals 3,490 3,491 2, % -18.5% Chemical Products 4,271 4,503 4, % -10.3% Others 16,808 18,404 15, % -14.0% Total 38,772 43,685 37, % -14.8% Figure 29 Non-oil export trend (y-o-y) Figure 30 Non-oil import trend (y-o-y) YoY % 24.3% 26.5% 26.7% % 18.0% % 1 3.6% % 22.6% -6.5% 9.8% 8.4% YoY % -1.1% -3.3% -3.2% % % % % -2.2% -8.5% -5.8% -22.8% -3-4 Non-oil Export Non-oil Import Figure 31 Impact of currencies on Weighted-average Saudi imports (m-o-m) * FX movement (USD/Unit) May June July August September October November EUR -3.2% 0.1% -0.2% -0.8% -2.5% YUAN -1.2% -2.8% -0.4% -0.3% -0.5% -1.5% 0.2% YEN 0.5% -1.1% 1.0% 0.7% -2.3% 0.7% -0.5% FX impact on weighted average imports Germany -0.2% -0.1% China -0.2% -0.5% -0.1% -0.1% -0.1% -0.3% Japan -0.1% Source: Bloomberg, GASTAT, Al Rajhi Capital * Out of the 5 top-ranked countries of import, currency of UAE is pegged and so would its variance with the USD and therefore it has been ignored. USD itself is the currency of comparison and so US has also not been taken. Currency movement of Germany, China and Japan has been taken up for analysis. For calculation of weights of the countries of import, data from November has been chosen and assumed constant for preceding period, as consistent data sets is not available for all the countries chosen for analysis. For November 2018, the weights are China (16.8%), Germany (4.6%) and Japan (4.8%). Disclosures Please refer to the important disclosures at the back of this report. 12

13 Saudi International bond yields fell on a MTD basis in January Saudi international bond yields Saudi international bond yields with 5 year maturity dropped by 19.6bps MTD to 3.448% in January 2019, while bond yields with 10 and 30 year maturities fell 23.4bps and 14.7bps, respectively to 3.924% and 4.961%. Figure 32 International Bond Yields 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 30 Yr 10 Yr 5 Yr Source: Bloomberg, Al Rajhi Capital Most major currencies rose on a MTD basis against the USD Exchange Rates On the forex front except the Euro, all the major currencies (the British Pound, the Canadian Dollar, the Chinese Yuan, the Australian Dollar and the Japanese Yen rose on a MTD basis in January against the US Dollar. Figure 33; Monthly Change (%) against the US Dollar 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% -0.5% -1.0% UK Canada China Australia Japan Europe Monthly Change (%) against USD Source: Bloomberg, Al Rajhi Capital Disclosures Please refer to the important disclosures at the back of this report. 13

14 IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report was prepared by Al Rajhi Capital (Al Rajhi), a company authorized to engage in securities activities in Saudi Arabia. Al Rajhi is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to major U.S. institutional investors in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act ). Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. 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15 Disclaimer and additional disclosures for Disclaimer This research document has been prepared by Al Rajhi Capital Company ( Al Rajhi Capital ) of Riyadh, Saudi Arabia. It has been prepared for the general use of Al Rajhi Capital s clients and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of Al Rajhi Capital. Receipt and review of this research document constitute your agreement not to redistribute, retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this document prior to public disclosure of such information by Al Rajhi Capital. The information contained was obtained from various public sources believed to be reliable but we do not guarantee its accuracy. Al Rajhi Capital makes no representations or warranties (express or implied) regarding the data and information provided and Al Rajhi Capital does not represent that the information content of this document is complete, or free from any error, not misleading, or fit for any particular purpose. This research document provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to buy or sell any securities or other investment products related to such securities or investments. It is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. Investors should seek financial, legal or tax advice regarding the appropriateness of investing in any securities, other investment or investment strategies discussed or recommended in this document and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities or other investments, if any, may fluctuate and that the price or value of such securities and investments may rise or fall. Fluctuations in exchange rates could have adverse effects on the value of or price of, or income derived from, certain investments. Accordingly, investors may receive back less than originally invested. Al Rajhi Capital or its officers or one or more of its affiliates (including research analysts) may have a financial interest in securities of the issuer(s) or related investments, including long or short positions in securities, warrants, futures, options, derivatives, or other financial instruments. Al Rajhi Capital or its affiliates may from time to time perform investment banking or other services for, solicit investment banking or other business from, any company mentioned in this research document. Al Rajhi Capital, together with its affiliates and employees, shall not be liable for any direct, indirect or consequential loss or damages that may arise, directly or indirectly, from any use of the information contained in this research document. This research document and any recommendations contained are subject to change without prior notice. Al Rajhi Capital assumes no responsibility to update the information in this research document. Neither the whole nor any part of this research document may be altered, duplicated, transmitted or distributed in any form or by any means. This research document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or which would subject Al Rajhi Capital or any of its affiliates to any registration or licensing requirement within such jurisdiction. Contact us Mazen AlSudairi Head of Research Tel : alsudairim@alrajhi-capital.com Al Rajhi Capital Research Department Head Office, King Fahad Road P.O. Box 5561, Riyadh Kingdom of Saudi Arabia research@alrajhi-capital.com Al Rajhi Capital is licensed by the Saudi Arabian Capital Market Authority, License No. 37/ Disclosures Please refer to the important disclosures at the back of this report. 15