RIYADH, 23 November 2004 — Saudi Arabia’s runaway stock market index surged through 8,000 points to a new record yesterday on investor optimism that strong oil prices and corporate profits would extend into next year.
The index closed 1.54 percent higher at 8,086.29 points — a gain of more than 82 percent since the start of the year after rising 76 percent in 2003.
Economists attribute the rise to the rapid growth in money supply and surging corporate profits, all fuelled by high oil export earnings in the world’s biggest crude exporter.
“Many of the gains are in the big blue-chip companies, their profits have been very strong,” said Abdulwahab Abu Dahesh, senior economist at Riyad Bank. Cement companies have also risen strongly after bringing forward planned construction projects. Petrochemical giant Saudi Basic Industries Corp. (SABIC), which plans to issue Saudi Arabia’s first corporate bond, rose 3.18 percent to SR875 ($233.3). Saudi Telecoms Co. rose 3.40 percent to SR661.75.
M3 money supply has grown 9.7 percent so far this year, pumping extra cash into a bourse more attractive to Saudi investors than relatively poorly performing global markets.
The value of daily trade on the Arab world’s biggest stock market, which saw its total capitalization hit SR1 trillion ($267 billion) last month, has tripled in the last year. “People are seeing the opportunities in the market are good,” said a Saudi banker.
“The economy is strong, regulations are becoming more transparent and people are happy to put their money in the region. The international markets have performed weakly compared to Gulf markets, so we’re also seeing more international investors looking to put money in the local market”.
Gulf Arabs are able to buy stocks in some Saudi companies, but other foreigners can only invest through mutual funds. Despite the index surge, economists say the price/earnings ratios of most stocks are still reasonable.
Abu Dahesh said shares could also weather a slight cooling off in world oil prices. “The expectation is oil prices will go down a little, but it will not impact the market. We believe prices will still be strong enough for a government surplus in 2005,” he said.
Brad Bourland, chief economist at Samba Financial Group, said non-oil factors including low interest rates, new public share offerings and upcoming major water, power and petrochemical projects were bringing new dynamism to the economy. “Economic conditions and business environment in Saudi Arabia in 2004 are strong, but the key emerging story is that these strong conditions now appear likely to improve further in 2005, even in the case of a moderation in oil prices,” he said.
