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Saudi stock market to offer ‘strong relative value’ in 2013

Shares in Saudi Arabia will offer the “value story” across emerging markets next year as stable oil prices and government spending are set to attract more investors to the stock market, according to analysts.
"I think the Saudi market should offer strong relative value because of the attractive fundamentals in an uncertain world," Jarmo T. Kotilaine, a regional analyst, told Arab News yesterday.
Basil Al-Ghalayini, CEO of BMG Financial Group, said: The fundamentals are quite promising for 2013 with the continuation of the unprecedented government spending on certain mega projects. Furthermore, we are expecting more IPOs to be released in 2013 compared with 2012 which should provide the stock market further depth and breadth."
The Saudi benchmark Tadawul All Share Index gained 7 percent so far this year, lagging the 15 percent gain for the MSCI Emerging Markets Index (MXEF), a Bloomberg report said.
It said the Saudi index offers a dividend yield of 3.6 percent compared with 2.7 percent for MSCI EM Index.
“We expect the first half to be bullish for Middle East and North Africa equities and see Saudi Arabia as the value story for 2013 across the emerging market space,” analysts Digvijay Singh and Alexey Zabotkin at VTB Capital Plc, the London-based investment-banking arm of VTB, wrote in a research note, with an overweight recommendation on the Kingdom.
Oil prices, infrastructure spending and dividend yields are among catalysts that will help boost share prices, they said.
Advanced Petrochemicals Co. (APPC), National Industrialization Co. (NIC) and Alinma Bank are among VTB Capital’s top five stock picks in the Middle East and North Africa.
Kotilaine pointed out that the global backdrop will be key in determining the relative attractiveness of the Saudi market.
He said: "A failure to work out a meaningful short-term solution to the US fiscal saga and the euro zone crisis would likely revive oil demand erosion concerns, however temporarily. This might hit both oil production and the relative competitiveness of the petrochemicals sector. However, the government is well positioned to counteract such negative forces to ensure relative continuity.
"But there is some chance even of upside risks: A US compromise and EU muddling through with progress on completing the monetary union. This would likely give us stronger oil prices and increased competitiveness of petrochemicals, even if the positive progress in KSA would stand out less from a favorable global dynamic," said Kotilaine.
Despite falling for two consecutive months and offering lucrative opportunities with attractive valuations, the Tadawul index slid for a third month in November. Tadawul declined by 3.8 percent and almost erased all of this year’s gains by ending November at a gain of 1.8 percent, the National Commercial Bank (NCB) said in its latest report.
The worst performing sectors during November were real estate which dropped 8.6 percent followed by construction, declining by 7 percent M/M and intensifying its YTD losses to 17.7 percent by the end of last month. All sectors reported declines with the exception of transport which managed to gain a marginal 0.1 percent over the month.
The quickest sectors to overcome losses in December were insurance, media & publishing, and telecom which have gained 12.2 percent, 5.7 percent, and 5.5 percent MTD, respectively, the NCB report said.
Activity levels continue to deteriorate as November recorded an average of SR 4.9 billion daily traded volumes following October’s SR 5.0 billion. Since the beginning of the year, daily volumes have averaged at SR 7.8 billion, matching 2008’s level.
Furthermore, market capitalization declined during November to SR 1.34 trillion from the previous month which was at SR 1.38 billion, the report said.

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