JEDDAH: The Saudi stock market's turnover showed impressive growth last year, which highlights growing investor interest in the bourse, say top economists.
TASI closed 0.9 percent higher yesterday after oil prices edged up on Monday and the US Senate passed a deal to avert a “fiscal cliff”. The petrochemical index jumped 1.8 percent.
The Saudi stock market performance remained strong in 2012. The market kicked off 2012 on a strong note on optimism from housing-related news. The rally continued through H1, 2012, but faltered in the second half on profit warnings from the banks and petrochemicals. However, the year overall was fairly strong for Tadawul.
At the end of 2012, the Tadawul All-Share Index (TASI) closed at 6,801.22 points compared to 6,417.73 points for the previous year, and gained 383.49 points or 5.98 percent.
The highest close level for the index (TASI) during the year was7,930.58 points on April 3, according to a statistical report for 2012 released by Tadawul yesterday.
However, Jarmo T. Kotilaine, a regional analyst, said: “The index highs could not be sustained in the face of an uncertain global situation, which eventually hit the oil price as well, containing the positive impetus from this key market influence.”
In terms of its other characteristics, the market is showing growing signs of underlying strength and maturity, he said.
“The market turnover has shown impressive growth, which highlights growing investor interest. The IPO (initial public offering) volumes are modest by historical standards but point to continuity in terms of Tadawul being able to attract new issuers on a fairly steady basis,” Kotilaine said.
The total market capitalization at the end of 2012 reached SR 1.40 trillion, increasing by 10.19 percent as compared to the end of the previous year.
The total value of traded shares for 2012 reached SR 1.93 trillion compared to SR 1.09 trillion for the previous year, increasing by 75.58 percent.
The total number of transactions executed in 2012 reached 42.11 million compared to 25.55 million trades for the previous year, increasing by 64.81 percent.
The total number of shares traded for 2012 reached 82.54 billion compared to 48.26 billion shares traded during the previous year, increasing by 71.03 percent.
Tamer El Zayat, senior economist at the National Commercial Bank (NCB), said Tadawul continues to defy the strong fundamentals of the macroeconomic environment and the unprecedented direct and indirect fiscal stimulus as witnessed by the record budgets over the last two years. Ostensibly, there is decoupling between the average growth rate of the nonoil sector and the robust corporate profitability on the one hand and TASI's performance on the other.
“On a fundamental basis, the nonoil private sector grew at historical records in 2011 and 2012, registering 8.3 percent and 7.5 percent, respectively, above the pre-crisis average level that stood at 4.6 percent during 1999-2009, thus, supporting corporate Saudi Arabia's bottom-line,” El Zayat said.
However, he said the dominance of retail investors that represented around 94 percent of market trading and had been net sellers all year long was a structural weakness that results in frequent price gyrations given their intraday trading practices. As such, the upbeat and above-expected earnings’ results witnessed over the last couple of years get mostly unnoticed as investors take their cue from the unfolding crisis in Europe and elsewhere.
“A review of the profitability over the last three years is a testimony of the decoupling theme, with 2010 and 2011 corporate profitability registering 35 percent and 26 percent annual growth rates while TASI lagged behind posting a gain of 8.2 percent and a decline of 3.1 percent, respectively,” El Zayat said.
He added: “This year is no different with an anticipated double-digit growth rate in profitability that will support my belief that on pure fundamentals, TASI must have been well above the 7,000 threshold. It had to be noted that the Public Investment Fund, being the largest shareholder on Tadawul with an amount totaling SR 290 billion had put a floor under the stock market given its long-term investment horizon and continued support via equity financing, which attests to the importance of opening up to institutional investors.”
Fiscal cliff
Commenting on Tadawul’s 2012 performance, Fahad Alturki, senior economist at Jadwa Investment, said: “This is most probably due to general optimism in regards to the recent developments in fiscal cliff negotiation. Domestic conditions are also supportive following the budget announcement earlier this week.”
Asim Bukhtiar, vice president/head of research at Riyad Capital, said: “Gains in turnover and trading activity were encouraging as the Tadawul recovered from the lows of 2010. Further, new issues coming to the market were well-received in building confidence for more IPO activity in 2013.”
He said the performance of the index was below expectations considering that the S&P was up 13 percent. This could translate to better performance in 2013, as the TASI plays catch-up.
“At the start of the year, we highlighted that 2012 could be the year of the telecoms, which turned out to be a great call. For 2013, we expect the real estate sector to continue to outperform as steps are taken to develop the mortgage market,” Bukhtiar said.
Farouk Miah, head of equity research at NCB Capital, said overall the performance was reasonable and in line with our strategy; at the beginning of 2012 we highlighted our preference for locally focused areas such as retail, cement and telecoms and we highlighted globally exposed areas such as petrochemicals as the sector to stay away from.
“If we analyze 2012 returns on a sector basis, we find petrochemicals is the main sector which is down in 2012 (down 6 percent) whereas the best performers are the locally driven sectors such as telecoms (up 30 percent), retail (up 16 percent) and cement (up 14 percent),” he added.
In hindsight, the performance in Q1, 2012 which had strong volumes and share performance was a one-off with the performance deteriorating in the rest of the year, Miah said.
According to the Tadawul report, daily average number of transactions executed during the year 2012 reached 167.75 thousand trades compared to 103.01 thousand trades during the previous year, increasing by 62.84 percent.
The daily average value of shares traded during the year 2012 reached SR 7.69 billion compared to SR 4.43 billion for the previous year, increasing by 73.48 percent.
The daily average number of shares traded during the year 2012 reached 328.86 million compared to 194.61 million shares traded during the previous year, increasing by 68.99 percent.
The number of companies that offered part of their shares through IPOs during 2012 reached 7, representing cement, retail, agriculture and food industries, insurance, industrial investment, and hotels and tourism sectors, bringing the total number of listed companies to 158, according to Tadawul website.
The total offered value reached SR 5.32 billion, and 257.40 million shares were offered for all IPOs during 2012.
By the end of 2012, the market capitalization of the listed IPO companies reached SR 24.10 billion, representing 1.72 percent of the total market capitalization.
