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Saudi Aramco shares decline due to US-Iranian tensions

UNITED STATES (OBSERVATORY NEWS) — Saudi Aramco shares hit a new low on Wednesday after Iran fired missiles at two US bases in Iraq, but Gulf debt markets remained stable as some worried about more severe retaliation for the assassination of an Iranian military commander.

Saudi Aramco shares fell to 34 riyals ($ 9.06) when the market opened, its lowest level since it began trading on December 11, putting the company’s market value at about $ 1.8 trillion from a peak of $ 2.06 trillion on December 12. The stock closed on Wednesday, down 0.4 percent to 34.2 riyals.

Geopolitical tensions are the reason for the latest bout of weakness in Aramco’s shares, but it was already in decline as investors looked into the company’s prospects after the IPO receded, said Jason Toffey, chief economist of emerging markets at Capital Economics.

Aramco shares are down about 12 percent from the peak of 38.70 riyals recorded on December 12, but they remain above the initial offering price of 32 riyals, which put the company’s valuation at $ 1.7 trillion.

Aramco’s performance was in line with the overall market, as all Gulf indices closed low after Iran responded to an American strike with a drone plane last week in which Qasem Soleimani was killed.

Analysts said Aramco shares could receive support after US President Donald Trump said the United States may not have to use its military might against Iran, in what appears to be an attempt to defuse the crisis.

“This will definitely remove the market panic,” said Nirjunan Tiruchelvam, head of consumer equity research at Telemer.

Regardless of the precarious situation, Aramco is a strong share. We may be facing a wave of bets on the rise in commodity prices after more than five years of weak investment. ”

– Signs of stability –

Debt markets showed signs of stability after the weekend fluctuations, as bonds issued by Gulf governments remained almost stable and there was no change in the credit risk swap contracts – used in sovereign debt insurance from the risk of default.

Zeina Rizk, Director of Fixed Income Asset Management activities at Arqaam Capital in Dubai, said, “It appears that the Iranian retaliation does not constitute an escalation, which explains the difference in the markets. I think that once this is confirmed, we may see a limited rise in the markets in the region as a result of feeling satisfied.”

According to IHS Market, the bonds issued by Saudi Arabia, Iran’s regional opponent, have declined only slightly, especially at the longer term limits on the curve. Five-year credit risk swap prices rose only one basis point.

Aramco said on Tuesday that Goldman Sachs may implement a price stabilization of its shares, which has not happened so far since the stock began trading. The price stability period ends on Thursday.

Aramco raised $ 25.6 billion in its initial public offering, making it the world’s largest, bypassing the Alibaba Group deal that raised $ 25 billion in 2014. But foreign investors were wary about investing in Aramco for appraisal concerns.

Oswald Clint, senior analyst at Sanford C. Bernstein, “The tensions between the United States and Iran are one of the threats that people have witnessed with the focus of operations in the Middle East.”

Two Aramco facilities were attacked in September in a strike that temporarily halted 5.7 million barrels per day of production, more than five percent of global oil supplies.

Morning Star, which started its coverage of Aramco last month, said Aramco’s fair value was $ 1.4 trillion.

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