Saudi shares rise ahead of FTSE Russell index move

Gains on the Tadawul main index on Sunday were led by financial stocks. (Reuters)
Updated 03 March 2019

Saudi shares rise ahead of FTSE Russell index move

  • Tadawul gears up for inclusion in emerging market benchmarks
  • Stock exchange expects passive fund inflows of up to $20 billion this year


DUBAI: Saudi stocks ended higher on Sunday, helped by optimism over more fund inflows ahead of inclusion on FTSE Russell’s emerging market index in about two weeks.

The Tadawul main index was up 0.5 percent, led by financial stocks. Samba Financial Group rose 1.1 percent and Al Rajhi Bank climbed 0.4 percent.

Al Tayyar Travel Group surged 5.7 percent as investors went past its full-year loss in 2018 to take comfort from its plans to raise SR3 billion ($800 million) in fresh capital.

One trader, who asked not to be named, said speculation around a possible takeover of Dubai-based ride-hailing firm Careem by Uber Technologies is also fueling gains in Al Tayyar’s stocks given the company’s minority stake in Careem. 

Saudi Arabia’s stock exchange, the Gulf’s biggest market, expects passive fund inflows of $15 to $20 billion this year as it gears up for inclusion in emerging market benchmarks, its chief executive told Reuters on Thursday.

“The first phase of FTSE inclusion should drive in 10 percent of the estimated total $6 billion in passive flows into the Saudi market,” said Vrajesh Bhandari, a senior portfolio manager at Al Mal Capital.

He said bigger moves are expected when the global index provider MSCI adds Saudi stocks to its global benchmark in two tranches in May and August, however he cautioned that the Saudi market’s valuation appears rich.

The Saudi index has gained about 9 percent so far this year, outperforming its Gulf peers, trading at nearly 17 times price-to-earnings ratio.

Bhandari said the Saudi market’s rise may be capped by a slower earnings growth profile compared to other emerging markets.

Saudi stocks will be the largest Middle East portion of the FTSE Emerging Index, with an overall weighting of 2.7 percent, according to the index-compiler FTSE Russell.

The inclusion will happen in several tranches and will be completed by December this year. The first 25 percent tranche will be added starting March 18, according to the FTSE Russell document.

Dubai stocks were up 0.25 percent, rebounding from a selloff on Friday when profit-taking set in after a sharp rally in property stocks following strong fourth-quarter earnings of companies linked to Emaar Properties. Shares of Damac Properties surged 5.8 percent and Emaar Malls rose 1.7 percent.

Although the Dubai index has rallied this year, led by strong fourth-quarter results at real estate firms, an expected further fall in property prices is capping gains.

The Kuwaiti index gained 0.8 percent, fueled by gains in banking stocks. Burgan Bank ended 1.9 percent higher after recently posting a rise in quarterly earnings. Kuwait Finance House rose nearly 1 percent.

Egyptian stocks, which have been the best-performing stocks in the Middle East this year with gains of 13.7 percent, ended 0.2 percent higher on Sunday led by financials.

Bigger gains were capped by selling in Global Telecom Holding, which dropped 1.7 percent.

The stock has been volatile since Amsterdam-based Veon Holdings, an existing shareholder, recently submitted a mandatory takeover offer for the firm.

WEEKLY ENERGY RECAP: Strength in adversity

Updated 22 September 2019

WEEKLY ENERGY RECAP: Strength in adversity

  • Saudi Aramco was able to continue with its deliveries which reassured the market

The week started with the largest “force majeure” in the history of the oil industry following the attacks on Saudi Aramco oil and gas facilities in Abqaiq and Khurais. 

It represented a supply disruption of some 5.7 million barrels per day (bpd). 

Still, Saudi crude oil exports were suspended for only 36 hours before resuming. Brent crude’s price started the week on levels not seen since late April, above $70.

The market calmed down after Saudi Aramco customers confirmed that their near-term crude oil term allocations were not affected by the attacks and that there was sufficient stockpiles to cover for lost production.

This clearly demonstrated the robust and resilient infrastructure of Saudi Aramco oil and gas facilities.

The immediate risk management response greatly mitigated the losses despite suggestions from parts of the oil industry media that the attacks highlighted the vulnerability of Saudi oil supplies.

Saudi Aramco was able to continue with its deliveries which reassured the market and was the main factor in the gradual retreat of the oil price over the week.

Brent softened to $64.28 per barrel and WTI fell to $58.09 — but that was still up almost $4 from a week earlier.

That represented the biggest weekly gain this year since, with prices moving mostly in a very narrow band until this week.

Elsewhere, the US EIA reported that Cushing oil stocks were at their lowest level since October 2018. 

Storms in Texas also triggered the shutdown of some pipeline and terminal capacity, but the impact on the market is not yet clear as it coincides with a period of extensive refinery turnarounds in the region.

Softening crude oil futures show that the physical market is more concerned than the paper market as Arabian Gulf sour crude grades continue to strengthen. 

Platts reported that the backwardation (where the spot price of oil is higher than the future price) in the Dubai forward price structure rose to a six-year high of $2.90 per barrel. 

• Faisal Faeq is an energy and oil marketing adviser. He was formerly with OPEC and Saudi Aramco. Twitter:@faisalfaeq