Market Review - November 2019

December 3, 2019

By Jan Faure

Equity markets kept the momentum going in November with further gains across most indices.

Markets remained hopeful that a phase one trade deal would be signed between China and the US. Optimism did, however, fade towards the end of the month after legislation supporting Hong Kong protesters was signed by President Trump. In response China warned the move could undermine cooperation with Washington. A trade deal with China needs to be signed before December 15 when a new round of import tariffs on Chinese goods are set to come into effect. China has seemingly conceded on one of the major sticking points- clamping down on violations of intellectual property rights.

One of this year’s most anticipated events is set to take place in early December with the listing of Saudi state-owned oil giant Saudi Aramco. The company is set to sell a measly 1.5% of its shares in the IPO. Not so measly when the 1.5% is set to fetch $25 billion, valuing Saudi Aramco at $1.7 trillion. Saudi Aramco will list of the Saudi Stock Exchange (the Tadawul) and make up 75% of the entire stock exchange’s market cap.

Saudi Aramco pumps around 10 million barrels of crude a day. That is approximately 10% of the world’s oil output. Its annual profit in 2018 was $111 billion, or twice that of Apple which will become the 2nd most profitable listed company in the world.

What makes Saudi Aramco so special is its extremely low cost of production. It pumps out crude at a cost of $9 per barrel, significantly lower than the global average of $30 per barrel. This means Saudi Aramco will be the last oil producer standing when, years from now, alternative energy sources have increasingly displaced fossil fuels. The company also has huge reserves of 263 billion barrels of oil.

The IPO is a central pillar of the reform program of Crown Prince Mohammed bin Salman (MBS). Called “Vision 2030”, MBS plans to modernize the Saudi economy, reduce its reliance on oil and open the economy to foreign investment.

One of the challenges facing oil companies, you can call it being stuck between a rock and a hard place, is when prices are low they struggle for survival and when prices are high they encourage development of alternative energy sources.

In recent years OPEC’s influence in oil markets has diminished with the rise of shale oil in the US. In less than a decade the US has gone from production of 4 million barrels a day to 12 million barrels making it the world’s largest producer. This boom has had far reaching implications. The US is now less willing to deploy troops to the Middle East to protect the free flow of oil. This has made the region more unstable. In September Saudi Arabia’s vulnerabilities were exposed after a drone attack on Saudi Aramco’s oil processing facilities temporarily impacted about half of the oil group’s crude production.

GLOBAL INDICATORS: Local reporting currencies

Source: Bloomberg,, S&P Dow Jones Indices
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