JEDDAH, 6 April 2008 — New data from Tadawul confirms the dominant role individual investors are playing in the Saudi stock market. According to Riyadh-based Jadwa Investment, individual Saudi investors accounted for nearly 95 percent of stock market trades by value for the first two months of 2008.
Individual Saudi investors accounted for 94.5 percent of total transactions, GCC (Gulf Cooperation Council) investors accounted for 1.7 percent, resident Arab and other foreign investors accounted for 1.2 percent and 0.1 percent respectively and mutual funds and corporations were responsible for only 1.8 percent of the 11.6 billion shares traded during January and February. Greater foreign presence in other markets in the GCC is, however, impacting the Saudi market (foreign investors currently account for around 40 percent of the transactions on the Dubai stock exchange.)
The data show that the average trade by mutual funds and corporations is around twice the size of that of individual investors.
While there are legal and organizational advantages in forming formal investment companies, most private money managers choose to operate through individual accounts in order to assess all initial public offerings (IPOs).
Indeed, it is clear that individual investors are not necessarily small investors. Tadawul statistics did not reveal the average size of the individual portfolio, but according to Jadwa, as some private managers of family assets control funds that run into billions of riyals. The report said a market heavily dominated by a single type of investor is more volatile.
Brad Bourland, chief economist at Jadwa, said “One distorting factor in Saudi market is that investors tend to reduce existing positions once an IPO subscription opens, causing prices to fall. As IPOs are generally comfortably oversubscribed, surplus cash is returned to investors and then reinvested in the market, often causing share prices to jump. With several IPOs are in the pipeline, these distortions are likely to continue.”
The Saudi stock market is not immune from what is happening in global markets. Until recently the Saudi market was negatively correlated with global stock markets. In recent months market movements have become more aligned and Saudi share prices have reacted when there has been a big sell-off on global markets. In addition, nervousness about global markets has resulted in a significant drop in volumes.
Daily volume traded averaged 190 million in March, only 80 percent of level for the whole of last year and less than half of the average for March 2007, despite new listings such as telecom giant Mobile Telecommunications Company Saudi Arabia (Zain KSA).
Movements in Saudi share prices will maintain their closer relationship with global stock markets and the performance of Saudi companies that earn the majority of their revenue from abroad is likely to be affected.
The report said bulk of the largest listed Saudi companies is clearly exposed to the global economy. Of the top 15 companies by market capitalization — each with a market cap of over SR30 billion — only Saudi Electricity Co. (SEC), Saudi Telecom Co. (STC) and property developer Dar Al-Arkan Real Estate Development Co. are relatively insulated from global developments.
But there is uncertainty about Saudi banks’ exposure to asset-backed debt instruments. Nevertheless, concerns stemming from the problems in the global banking sector and a lack of transparency about the holdings of local banks are weighing on the sector as well as the sharp growth of competition in financial services in the Kingdom.
“Saudi Arabia is in the midst of a period of strong domestic economic growth driven by investment and liberalization, and this economic health will be reflected in the performance of listed companies with a domestic focus,” Bourland said. He added “In December, we put the fair value for the Tadawul All-Share Index at about 8,500. With the index currently around 9,200 range, the market is in the fair value rage once again,” adding that “We think the market will continue to be held down in the second quarter by the turmoil in global markets, though the results of many companies with a domestic focus will be strong and there are select buying opportunities.”
According to data available on Tadawul website, the total amount of traded shares in the Saudi Stock Exchange for March dropped by 26.70 percent to SR158.97 billion compared to SR216.87 billion in February.
The percentage share of Saudi nationals from the market trades was 92.4 percent for selling (146.87 billion) and 90.6 percent for buying (144.09 billion). The percentage share of Saudi companies from the market trades was 2.8 percent for selling (SR4.52 billion) and 4.3 percent for buying (SR6.83 billion). The percentage share of investment funds from the market trades was 1.7 percent for selling (SR.77 billion) and 1.3 percent for buying (SR2.07 billion).
The percentage share of GCC nationals from the market trades was 1.5 percent for selling (SR2.44 billion) and 2.0 percent for buying (SR3.23 billion). The percentage share of Arab residence in Saudi Arabia from the market trades was 1.4 percent for selling (SR2.20 billion) and 1.6 percent for buying (SR2.57 billion). The percentage share of foreigners residence in Saudi Arabia from the market trades was 0.1 percent for selling (SR164.99 million) and 0.1 percent for buying (SR189.07 million).
