Stronger corporate governance to drive Saudi market interest

Stronger corporate governance to drive Saudi market interest
Updated 09 June 2015

Stronger corporate governance to drive Saudi market interest

Stronger corporate governance to drive Saudi market interest

JEDDAH: Saudi Arabia’s stock market (Tadawul) has all the ingredients to do quite well in the coming months, says a top Riyadh-based economist.

The market, which has gained 13.89 percent so far this year, is the biggest in the Middle East. It boasts petrochemical and banking giants that investors will be keen to tap.
The Tadawul All-Share Index (TASI) fell on Tuesday by 0.4 percent to 9,491 points as most local stocks declined. It closed well off its intraday low of 9,426 points though, as buying late in the session lifted the benchmark towards its 200-day average of 9,493 points.
Crude prices jumped 3 percent or more on Tuesday. According to Reuters, Brent futures were up $2, or 3.2 percent, at $64.69 a barrel by 11:25 a.m. EDT (1525 GMT). That was the largest advance on the day for Brent since May 29. US crude futures rose by $1.80 to $59.94.
John Sfakianakis, Middle East director at Ashmore Group, told Arab News that the market’s direction after it opens to global financial institutions next week will depend on corporate results, business confidence, macro stability, oil price trends as well as geopolitics.
“By the end of the year, the stock market is expected to be higher than its current level but how far higher all depends on many factors. This market has all the ingredients to do quite well in the coming months,” he added.
Aleksandar Stojanovski, research analyst, Deutsche Bank AG, commented: “The opening of the Saudi stock exchange to qualified foreign investors (QFIs) is an important event that will have a positive impact on the Saudi equity market as well as the economy. It should have a significant and positive impact to all market participants, including the international banks active in Saudi Arabia.”
Tara Smyth, head of investments for the Middle East at J.P. Morgan Private Bank, said: “Clients in Saudi Arabia are very proud and they are convinced that their market has reached the level of maturity required to take this first step. They salute the change as it reveals the country’s attractiveness and growing economy for foreign investors. A challenge is to further enhance an already robust standard of corporate governance as it will be a leading factor in driving foreign investor confidence in the market.”
Jarmo T. Kotilaine, a regional analyst, said: “Saudi Arabia is a dynamic economy with lots of strong companies across the spectrum. There are particular sectors, e.g. insurance, where some consolidation may be needed and the near-term potential could be less compelling.” 
Mushtaq Ahmed, senior financial analyst at Zughaibi & Kabbani Financial Consultants, told Arab News: “Banks and financial services sector may offer potential investment opportunities due to their favorable business dynamics.”
Fahad M. Alturki, chief economist and head of research at Jadwa Investment, commented: “Since the announcement in late July 2014 that foreign investors would be allowed to invest directly into Tadawul, we have seen a number of developments that have impacted the TASI. This includes a massive drop in oil prices, which negatively impacted investor sentiment and led to panic selling, and the $6 billion initial public offering (IPO) of the National Commercial Bank (NCB), which amounted to the second-biggest IPO of 2014 globally.”
He added: “The Tadawul’s capitalization stands at around two thirds of Saudi GDP, making it larger than the Mexican stock market. When compared regionally, it is almost the same size as all the other equity markets in the Gulf combined. Opening up the market is likely to lead to inclusion into the MSCI emerging market index by mid-2017, with as much as $40-50 billion of total foreign inflows.”
In his comments to Arab News, Sfakianakis further said: “Over time, not from day one, we should expect the market to receive an inflow of foreign money. Foreign investors will get to learn about the market and they will begin to invest at a higher rate. Again over time, foreign investors tend to bring greater institutionalization, transparency and accountability of corporates, a long-term view when it comes to investing which means that investing becomes more sticky and less retain oriented.”
He added: “Foreigners will look for important themes that are more delinked away from oil and geared by demographics such as consumer, food and healthcare themes.”