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

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.


HP rejects Xerox takeover bid, says open to acquiring Xerox instead

Updated 18 November 2019

HP rejects Xerox takeover bid, says open to acquiring Xerox instead

  • In rejecting Xerox's $33.5 billion cash-and-stock acquisition offer, HP said the offer “significantly” undervalued the personal computer maker
  • Xerox made the offer for HP on Nov. 5 after resolving its dispute with its joint venture partner Fujifilm Holdings Corp.
NEW YORK: HP Inc. said on Sunday it was open to exploring a bid for US printer maker Xerox Corp. after rebuffing a $33.5 billion cash-and-stock acquisition offer from the latter as “significantly” undervaluing the personal computer maker.
Xerox made the offer for HP, a company more than three times its size, on Nov. 5, after it resolved a dispute with its joint venture partner Fujifilm Holdings Corp. that represented billions of dollars in potential liabilities.
Responding to Xerox’s offer on Sunday, HP said in a statement that it would saddle the combined company with “outsized debt” and was not in the best interest of its shareholders.
However, HP left the door open for a deal that would involve it becoming the acquirer of Xerox, stating that it recognized the potential benefits of consolidation.
“With substantive engagement from Xerox management and access to diligence information on Xerox, we believe that we can quickly evaluate the merits of a potential transaction,” HP said in its statement.
The move puts pressure on Xerox to open its books to HP. Xerox did not immediately respond on Sunday to a request for comment on whether it will engage with HP in negotiations as the potential acquisition target, rather than the acquirer.
HP on Sunday published Xerox CEO John Visentin’s Nov. 5 offer letter to HP, in which he stated that his company was “prepared to devote all necessary resources to finalize our due diligence on an accelerated basis.”
Activist investor Carl Icahn, who took over Xerox’s board last year together with fellow billionaire businessman Darwin Deason, said in an interview with the Wall Street Journal last week that he was not set on a particular structure for a deal with HP, as long as a combination is achieved. Icahn has also amassed a 4% stake in HP.
Xerox had offered HP shareholders $22 per share that included $17 in cash and 0.137 Xerox shares for each HP share, according to the Nov. 5 letter. The offer would have resulted in HP shareholders owning about 48% of the combined company. HP shares ended trading on Friday at $20.18.
Many analysts have said there is merit in the companies combining to better cope with a stagnating printing market, but some cited challenges to integration, given their different offerings and pricing models.
Xerox scrapped its $6.1 billion deal to merge with Fujifilm last year under pressure from Icahn and Deason.
Xerox announced earlier this month it would sell its 25% stake in the joint venture for $2.3 billion. Fujifilm also agreed to drop a lawsuit against Xerox, which it was pursuing following their failed merger.

Test for new HP CEO
In 2011 as the centerpiece of its unsuccessful pivot to software. Little over a year later, it wrote off $8.8 billion, $5 billion of which it put down to accounting improprieties, misrepresentation and disclosure failures.
More recently, HP has been struggling with its printer business segment recently, with the division’s third-quarter revenue dropping 5% on-year. It has announced a cost-saving program worth more than $1 billion that could result in its shedding about 16% of its workforce, or about 9,000 employees, over the next few years.
Xerox’s stock has rallied under Visentin, who took over last year as CEO. However, HP said on Sunday that a decline in Xerox’s revenue since June 2018 from $10.2 billion to $9.2 “raises significant questions” regarding the trajectory of Xerox’s business and future prospects.