Inclusion of Saudi stocks in MSCI to boost activity in Gulf markets in August

Total ownership of Saudi stocks by foreign investors has increased to 7.47 percent as of June 30. (Reuters)
Updated 08 July 2019
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Inclusion of Saudi stocks in MSCI to boost activity in Gulf markets in August

  • Tadawul index falls in response to a fall in profits of Almarai and weakness in blue-chip stocks

DUBAI: Saudi stocks fell on Sunday in response to a fall in profits at food company Almarai and weakness in blue-chip stocks, while the Kuwait index rose for the seventh straight session buoyed by the recent MSCI move to upgrade Kuwaiti stocks to emerging market.
The Saudi market had opened slightly higher on selective buying in financials, but quickly lost momentum after Almarai’s shares plunged.
Almarai Co. fell 2.5 percent after it reported a nearly 12 percent drop in second-quarter profit and also announced the resignation of its Chief Executive Alois Hofbauer.
Saudi Basic Industries Corp., the index’s biggest stock by market capitalization, also slipped 0.2 percent and lender Banque Saudi Fransi dropped almost 1 percent.
Kuwait’s index gained 1.2 percent with the index hitting a new high for the year, extending gains after MSCI’s decision last month to move Kuwaiti equities to its main emerging markets index in 2020, a move that could trigger billions of dollars of inflows.
Kuwait has outperformed its Gulf peers in anticipation of the MSCI move, gaining nearly 26 percent year-to-date.
Middle Eastern funds plan to continue increasing investments in Kuwait over the next three months, a Reuters poll found earlier this week.
“Generally the summer period sees lower liquidity, so there is a seasonality factor. Having said that, Kuwait turnover and performance remains very solid,” said Mohamad Al-Hajj, head of MENA Equity Strategy for EFG Hermes.
There could be increased activity in the Gulf markets in August when MSCI is set to kick in the second phase of including Saudi stocks in its emerging market index.
“This should also generate higher trading activity across the region,” Al-Hajj said.

HIGHLIGHTS

● Kuwait’s index gained 1.2 percent with the index hitting a new high for the year.

● Property stocks weighed on Dubai index, which dropped 0.5 percent.

● Bahrain’s index gained 1.7 percent on the back of strong gains in Ahli United Bank.

Total ownership of Saudi stocks by foreign investors has increased to 7.47 percent as of June 30, up from 4.67 percent at the end of December, stock exchange data shows, reflecting increased active and passive fund flows this year.
Property stocks weighed on Dubai index, which dropped 0.5 percent. Emaar Properties fell 0.5 percent and DAMAC Properties dropped 2.4 percent. Emirates NBD was down 1.8 percent.
Qatar shares were also hit by selling in key blue-chip shares, as investors took profit from recent gains.
Qatar shares gained ground in recent sessions as a 10-to-one stock split for companies on the exchange is being phased in from June 9 and will be completed by Sunday.
The move is designed to boost liquidity by encouraging smaller investors to buy shares.
Bahrain’s index gained 1.7 percent on the back of strong gains in Ahli United Bank, which surged 4.9 percent amid expectations of completion of its merger with Kuwait Finance House.


Debut of China’s Nasdaq-style board adds $44bn in market cap

Updated 22 July 2019
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Debut of China’s Nasdaq-style board adds $44bn in market cap

  • Activity draws attention away from main board

BEIJING: Trading on China’s new Nasdaq-style board for homegrown tech firms hit fever pitch on Monday, with shares up as much as 520 percent in a wild debut that more than doubled the exchange’s combined market capitalization and beat veteran investors’ expectations.

Sixteen of the first batch of 25 companies — ranging from chip-makers to health care firms — increased their already frothy initial public offering (IPO) prices by 136 percent on the STAR Market, operated by the Shanghai Stock Exchange.

The raucous first day of trade tripped the exchange’s circuit breakers that are designed to calm frenzied activity. The weakest performer leapt 84.22 percent. In total, the day saw the creation of around 305 billion yuan ($44.3 billion) in new market capitalization on top of an initial market cap of around 225 billion yuan, according to Reuters’ calculations.

“The price gains are crazier than we expected,” said Stephen Huang, vice president of Shanghai See Truth Investment Management. “These are good companies, but valuations are too high. Buying them now makes no sense.”

Modelled after Nasdaq, and complete with a US-style IPO system, STAR may be China’s boldest attempt at capital market reforms yet. It is also seen driven by Beijing’s ambition to become technologically self-reliant as a prolonged trade war with Washington catches Chinese tech firms in the crossfire.

Trading in Anji Microelectronics Technology (Shanghai) Co. Ltd., a semiconductor firm, was briefly halted twice as the company’s shares hit two circuit breakers — first after rising 30 percent, then after climbing 60 percent from the market open.

HIGHLIGHTS

• 16 of 25 STAR Market firms more than double from IPO price.

• Weakest performer gains 84 percent, average gain of 140 percent.

• STAR may be China’s boldest attempt at capital market reforms yet.

The mechanisms did little to keep Anji shares in check as they soared as much as 520 percent from their IPO price in the morning session. Anji shares ended the day up 400.2 percent from their IPO price, the day’s biggest gain, giving the company a valuation of nearly 242 times 2018 earnings.

Suzhou Harmontronics Automation Technology Co. Ltd., in contrast, triggered its circuit breaker in the opposite direction, falling 30 percent from the market open in early trade before rebounding. But by the market close, the company’s shares were still 94.61 percent higher than their IPO price.

Wild share price swings, partly the result of loose trading rules, had been widely expected. IPOs had been oversubscribed by an average of about 1,700 times among retail investors.

The STAR Market sets no limits on share prices during the first five days of a company’s trading. That compares with a cap of 44 percent on debut on other boards in China.

In subsequent trading sessions, stocks on the new tech board will be allowed to rise or fall a maximum 20 percent in a day, double the 10 percent daily limit on other boards.

Regulators last week cautioned individual investors against “blindly” buying STAR Market stocks, but said big fluctuations were normal.

Looser trading rules were aimed at “giving market players adequate freedom in the game, accelerating the formation of equilibrium prices, and boosting price-setting efficiency,” the Shanghai Stock Exchange (SSE) said in a statement on Friday.

The SSE added that it was normal to see big swings in newly listed tech shares, as such companies typically have uncertain prospects, and are difficult to evaluate.