Saudi stock market basking in global investor interest

Saudi Arabia's Tadawul stock exchange is attracting increased interest from international investors. (Reuters)
Updated 29 July 2018
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Saudi stock market basking in global investor interest

  • Saudi share index gains 17 percent this year
  • Overseas interest fueled by string of upgrades

DUBAI: Is the Saudi stock market in the middle of a spectacular bull run? Some leading market experts think so.

Analysts at Jadwa Investments, the Riyadh-based financial group, believe it “totally plausible” that the Tadawul All Share Index (TASI), the main equity performance measure in the Kingdom, could be set for a 20 percent rise between now and early 2019, lifting it above the 10,000 point level for the first time since the heady days of 2014, before the oil price collapsed. It currently stands at around 8,400 points.

That would top an already strong performance in the first half of this year, boosted by inclusion in the top-three emerging market (EM) indices. The TASI is 17 percent ahead already this year, making it one of the best performing markets in the world, and the leading market in the Gulf.

All the signals have been pointing in the right direction so far in 2018. The oil price has resumed an upward path, the non-oil economy has reacted positively to an expansionary fiscal policy, and the regulators, led by the Capital Market Authority, has seen through a program of reform aimed at making Saudi Arabia more attractive and welcoming to foreign investors.

Global investors are buying into the Saudi story.

Jadwa said in a recent report: “We believe growing confidence in the nature and direction of structural economic reform, instituted as part of the Kingdom’s Vision 2030, has provided the backdrop to facilitate such sizable investments into the Saudi Stock Exchange.”

This new-found confidence was reflected in the decision by the three main global equity index providers to upgrade Saudi Arabia to emerging market status, alongside such economic powerhouses as China and India.

First FTSE-Russell awarded EM status in February, and S&P similarly upgraded last week. Sandwiched in between those was the “big one” — the move in June by MSCI to award EM ranking. Those accolades followed three year’s of hard work by the Tadawul and the CMA to make the biggest Gulf market also one of the best run and regulated.

EM status makes a big difference to global investor sentiment.

“We expect active investors benchmarked to MSCI EM to start entering the market prior to actual inclusion, which is expected to drive TASI performance even higher, similar to patterns observed with other regional equity markets prior to MSCI EM inclusion,” it added.

The Riyadh market performance has been all the more impressive in light of a growing aversion by global investors to EM destinations. Many big economies, like Russia, India and Nigeria, have seen net outflows so far in 2018, Jadwa said, while inflows to countries like Mexico, China and Brazil have been proportionately lower than into Saudi Arabia.

Furthermore, the experience of other regional markets — in Dubai and Abu Dhabi — of EM inclusion suggests that the best is yet to come for the Kingdom. Both saw significant rises after the announcement of inclusion, before trading actually commenced on the new status. Saudi Arabia will become a fully tradeable EM market in stages by the end of next year.

Jadwa’s position at the heart of the Riyadh financial hub gives its optimism some authority, but other analysts injected a note of caution into their forecasts.

ason Tuvey, Middle East analyst at London based Capital Economics, said that the surge of interest in Saudi Arabia as a result of the EM upgrades was only likely to be temporary, and that previous revival of foreign interest in Riyadh as an investment destination — as when foreign investors were first allowed to own shares in 2015 — had proved to be a false dawn.

Tuvey added that other factors would remain more important in determining global investor attitudes. “Historically, given the economy’s heavy dependence on oil revenues and the large proportion of petrochemical companies that make up the stock market, the Tadawul has closely tracked swings in oil prices,” he said.

With the future course of oil prices uncertain in view of regional geopolitical and global economic factors, Tuvey predicted a fall in the TASI of around 6 percent by year end.

Nasser Saidi, former chief economist of the Dubai International Financial Center and now an independent economics consultant, also sounded a note of caution. “The volatility of oil prices still dominate the performance of the economy, budget and the current account. This has meant macroeconomic uncertainty, accompanied by uncertainty surrounding policies in response to the fall in oil prices. In turn this means that investors whether domestic or foreign are in a ‘wait-and-see’ mode,” he told Arab News.

“Geopolitics, with ongoing wars in Syria and Yemen, and sanctions on Iran are negatively affecting investor sentiment, and Trumpian trade wars that can derail global economic growth, recovery in Europe and disrupt trade. In turn this affects the oil price and Saudi exports to China and other Asian countries,” he added.

He also warned of an after-party effect from soaring share prices. “The evidence also suggests a negative effect on the market on the actual event of reclassification, with prices falling. This involves investors speculatively bidding up securities prices and returns, before the actual reclassification event, in the expectation that foreign investors will be entering the market, resulting in prices falling following the actual reclassification event.

“Exuberance and market hype accompanying market reclassification can lead to asset price bubbles,” he added.

Foercasting the financial markets is a hazardous affair, but for now Saudi Arabia is basking in the limelight of being one of the world top equity investment destinations.


Libya’s National Oil against paying ‘ransom’ to reopen El Sharara field

Updated 14 December 2018
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Libya’s National Oil against paying ‘ransom’ to reopen El Sharara field

  • Ransom payment would set dangerous precedent
  • NOC declared force majeure on exports on Monday

BENGHAZI: Libya’s state-owned National Oil Corp. (NOC) said it was against paying a ransom to an armed group that has halted crude production at the country’s largest oilfield.
“Any attempt to pay a ransom to the armed militia which shut down El Sharara (oilfield) would set a dangerous precedent that would threaten the recovery of the Libyan economy,” NOC Chairman Mustafa Sanalla said in a statement on the company’s website.
NOC on Monday declared force majeure on exports from the 315,000-barrels-per-day oilfield after it was seized at the weekend by a local militia group.
The nearby El-Feel oilfield, which uses the same power supply as El Sharara, was still producing normally, a spokesman for NOC said, without giving an output figure. The field usually pumps around 70,000 bpd.
Since 2013 Libya has faced a wave of blockages of oilfields and export terminals by armed groups and civilians trying to press the country’s weak state into concessions.
Officials have tended to end such action by paying off protesters who demand to be added to the public payroll.
At El Sharara, in southern Libya, a mix of state-paid guards, civilians and tribesmen have occupied the field, camping there since Saturday, protesters and oil workers said. The protesters work in shifts, with some going home at night.
NOC has evacuated some staff by plane, engineers at the oilfield said. A number of sub-stations away from the main field have been vacated and equipment removed.
The occupiers are divided, with members of the Petroleum Facilities Guard (PFG) indicating they would end the blockade in return for a quick cash payment, oil workers say. The PFG has demanded more men be added to the public payroll.
The tribesmen have asked for long-term development funds, which might take time.
Libya is run by two competing, weak governments. Armed groups, tribesmen and normal Libyans tend to vent their anger about high inflation and a lack of infrastructure on the NOC, which they see as a cash cow booking billions of dollars in oil and gas revenues annually.