RIYADH, 27 March 2005 — An abundance of local capital with few investment outlets, combined with rocketing oil prices and a shortage of shares on the Saudi bourse, guarantee a bull market for the foreseeable future, experts say.
The Tadawul All-Shares Index (TASI) crossed the psychological 10,000-point threshold two weeks ago, continuing an upward trend that was rarely interrupted last year. “The market is expected to expand further. We have huge liquidity, while oil prices are expected to continue to rise in 2005,” said Saudi financial consultant Mutashar Al-Murshed.
Substantial Saudi wealth has reportedly been repatriated, fleeing the safes of Western banks after the Sept. 11, 2001 attacks and the ensuing scrutiny of Arab capital suspected of funding terrorism. This contributed to boosting local liquidity, Murshed said. “Apart from in real estate, there are few opportunities,” he told AFP.
Saudi Arabia, which sits on a quarter of the world’s proven crude reserves, has also been reaping the benefits of record-high oil prices, transforming a chronic budget deficit into substantial surpluses in the past two years. “I was expecting this increase (over 10,000 points)... The psychological impact of (high) oil prices on the market is important,” said financial analyst Ali Al-Jaafari. “I expect the up-trend to continue, exceeding the level of 11,000 points by the end of the current year,” he told AFP.
TASI started 2004 at 4,450 points, only to almost double its value by the end of the year, closing at 8,206 points. It ended last week’s trading at 10,400 points on Thursday - more than 25 percent higher than the beginning of the year.
TASI’s capitalization which was around $140 billion at the beginning of 2004 has also more than doubled to reach $375 billion. Three companies which opened their ownership to the public recently had their initial public offerings (IPO) oversubscribed by crowding investors.
Ettihad Etisalat, the second mobile telephone company to get an operating license, had its IPO oversubscribed 51-fold, reaching SR51 billion ($13.6 billion). Priced at SR50 ($13.3) for the IPO, its share is now trading at more than SR370 ($98.7), although the company has yet to commence operations. But the bulk of shares in companies are still owned by the government or founders, leaving limited amounts for small investors to trade. “Shares on offer are few, because government funds and banks monopolize a huge amount of the stocks,” Murshed said.
He said that the Saudi Stock Exchange Commission (SEC) allows founding partners to keep more than 50 percent of the shares of a listed company, charging that such behavior was “wrong”. “Only 20 percent of the shares of Etisalat Consortium was made available,” he protested.
The abundant liquidity needs to be channeled into productive sectors rather than fighting for limited supplies of shares in listed companies, Murshed argued. He suggested establishing a fund which could be listed on the stock market, in order to use excess capital to fund productive projects. “We have difficulties financing the railway projects, while we have huge liquidity,” he said in reference to the Kingdom’s multi-billion dollar project to connect its ports on the Gulf and Red Sea by rail. “New ideas should be brought to use excess available capital,” he added.
Meanwhile, Jaafari called on the government to release parts of its shares in large firms, like Saudi Basic Industries Corp. (SABIC) and Saudi Telecom — together representing over 45 percent of the total value of TASI. This could be “part of the privatization (process) and will make more shares available to satisfy the huge demand,” he said.
