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.


Oil prices rise on signs Iranian oil exports are falling further

Updated 5 min 4 sec ago
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Oil prices rise on signs Iranian oil exports are falling further

SEOUL: Oil prices dipped on Tuesday amid expectations of an increase in US crude inventories, but signs of a fall in Iranian oil exports this month kept losses in check.
International benchmark Brent crude for December delivery had fallen 6 cents, or 0.07 percent, to $80.72 per barrel by 0654 GMT.
US West Texas Intermediate crude for November delivery was down 14 cents at $71.64 a barrel.
US crude stockpiles were forecast to have risen last week for the fourth straight week, by about 1.1 million barrels, according to a Reuters poll ahead of reports from the American Petroleum Institute (API) and the US Department of Energy’s Energy Information Administration (EIA).
The API’s data is due at 4:30pm EDT on Tuesday, and the EIA report will be released at 10:30am EDT on Wednesday.
“Uncertainties will remain until Nov. 4 when it would be clear whether the United States would want to cut Iran oil exports to zero or grant waivers,” said Vincent Hwang, commodity analyst at NH Investment & Securities in Seoul.
“Brent prices are likely stay in the range of $80 a barrel or slightly higher, while WTI prices are likely to be $70-$75 a barrel,” Hwang added.
In the first two week of October, Iran exported 1.33 million barrels per day (bpd) of crude to countries including India, China and Turkey, according to Refinitiv Eikon data. That was down from 1.6 million bpd during the same period in September.
The October exports are a sharp drop from the 2.5 million bpd in April US before US President Donald Trump withdrew from a multilateral nuclear deal with Iran in May and ordered the re-imposition of economic sanctions on the country, the data showed.
The sanctions will come into force on November 4. The US special envoy for Iran said on Monday that the US is still aiming to cut Iran’s oil sales to zero.
Meanwhile, OPEC Secretary General Mohammad Barkindo said on Tuesday that global spare oil capacity was shrinking, adding that producers and companies should increase their production capacities and invest more to meet current demand.
With the world’s only sizable spare oil output capacity, Saudi Arabia is expected to export more to offset the loss of Iranian oil supply from the sanctions.
Saudi Arabia’s Energy Minister Khalid Al-Falih said on Monday at a conference in New Delhi that the kingdom is committed to meeting India’s rising oil demand and is the “shock absorber” for supply disruptions in the oil market.