The launch of an anti-corruption drive and the swift arrest of princes and ministers in Saudi Arabia on 4 November made headlines not only within the kingdom but also internationally.
The response to those headlines has been quite different and highlights an apparent disconnect between the attitude to risk of the local and international markets.
In Saudi Arabia, the local stock market has gained slightly since 4 November. On the first day, the Tadawul All Shares Index rose by 0.31 per cent, and the following day it rose again by 0.09 per cent. The increases suggest that markets do not fear any increased risk to the business environment.
While politics in Riyadh has little impact on international stock exchanges, as the world’s largest oil exporter, the internal machinations of Saudi Arabia do affect oil prices, and they have responded quite differently to the Saudi Stock Exchange (Tadawul). Since 4 November, Brent crude prices have increased 3.5 per cent to $64.27 a barrel – their highest level for more than two years.
Analysts say the rally over the past few days is because of the increase in perceived risk as a result of the political shake-up in Saudi Arabia, which has added to the general mood of underlying geopolitical risk.
The different reaction of local and international markets can be explained in a number of different ways. Regardless of the explanation, the disconnect is something Riyadh will have to be mindful of as it manages a complex balancing act of the instability that comes with political and economic reform and the stability that attracts foreign investors.
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