By Davide Barbuscia, Saeed Azhar and Tom Arnold
DUBAI (Reuters) - Saudi Arabia's Public Investment Fund (PIF) has been indirectly supporting local stocks, using local institutions, to limit a market crash caused by the killing of Saudi journalist Jamal Khashoggi, sources familiar with the matter said.
Foreign investors have been dumping Saudi equities over the past two weeks. Last week, they sold 1.07 billion in Saudi stocks, in one of the biggest sell-offs since the market opened to direct foreign buying in mid-2015.
The sell-off came amid increasing investor worries over the potential blow to Saudi Arabia's relations with the West following the death of journalist Jamal Khashoggi in Istanbul on Oct. 2.
Riyadh said on Saturday that Khashoggi died in a fight inside its Istanbul consulate, its first acknowledgement of his death after denying for two weeks that it was involved in his disappearance.
The Saudi index (TASI) has dropped over 4 percent since the beginning of October, but the loss would have been bigger if state-linked funds had not mounted an operation to support the stock market, several sources said.
The PIF, with assets estimated at over $250 billion and the largest shareholder in public equities in the kingdom, was one of the funds intervening in the market, buying stocks through institutional funds, fund managers and bankers said.
One of the sources said the buying by state funds was a natural response at a time when valuations were low.
Last week, PIF-backed funds bought around 5 billion riyals ($1.33 billion) of stocks, a regional fund manager said.
The PIF, which is to play a leading role in Saudi Arabia’s drive to develop non-oil industries, declined to comment.
Stocks that PIF holds stakes in are among those that have outperformed the index in the month to date, among them Riyad Bank (SE:1010), Samba Financial Group (SE:1090) and National Commercial Bank (SE:2010), according to Refinitiv data.
The Saudi index plunged by 3.9 percent on Oct. 11, the biggest drop since January 2016, and plummeted further on Oct. 14, shedding up to 7 percent during that day - its biggest drop since December 2014, when oil prices were crashing.
But by market close that day the market had recovered some of its losses, ending down 3.5 percent as state-backed funds started buying stocks to limit the damage. Since then, the pattern has continued, with stocks declining during the day and rebounding by market close.
Foreigners sold 619.9 million riyals of stocks in the week ended on Oct. 11 and 4 billion riyals of stocks in the week ended on Oct. 18, exchange data showed. [nL8N1X10O8]
It is not the first time state funds have stepped in to stabilize the market. They helped boost stocks in the days after last November's sweeping anti-corruption investigation by the government, which raised fears that people detained in the crackdown could dump assets.
Among the other $148 billion in mainly Saudi-listed assets, PIF holds stakes include Saudi Basic Industries Corp (SE:2010) and Saudi Telecom Company (SE:7010), according to Refinitiv data.
($1 = 3.7523 riyals)