Opening up to foreigners and getting high: Saudi stocks on six-and-a-half year peak

Published August 19th, 2014 - 12:04 GMT

Blue-chip stocks lifted Saudi Arabia’s bourse to a new six-and-a-half year peak on Sunday, while other Middle East markets were mixed as low volumes led to choppy trading and a lack of clear direction.

The Saudi Tadawul All Share Index rose 0.48 percent to close at 10,639.04 points, its highest finish since January 2008 and its 13th gain in the 15 sessions since authorities announced plans to allow direct foreign ownership of shares early next year. At present, foreigners can only own shares via instruments such as total return swaps.

Rohit Chawdhry, Gulf Baader Capital Markets head of asset management in Muscat, estimates foreigners’ Saudi shareholdings account for less than 1 percent of market capitalization, compared with 9 percent in Qatar and the United Arab Emirates.

“The Saudi equity market opening up to foreigners will have a structural, positive impact on sentiment,” said Chawdhry. “The macro (environment) is suggestive of a build-up in foreign inflows in Saudi stocks over the next year or two, geopolitical risks notwithstanding.”

Fourteen of the 20 largest Saudi stocks gained. These included Saudi Basic Industries Corp (SABIC), the Gulf’s biggest listed firm, which rose 0.3 percent, plus lender SABB and Banque Saudi Fransi, which climbed 1.7 and 2.2 percent respectively.

“Petrochemicals stocks are very promising - SABIC is probably the cheapest global petrochemical producer and I expect it will be one of the first stocks to be allowed direct foreign ownership,” said Chawdhry.

“Being one of the key strengths of the kingdom, the petrochemical stocks are likely to attract sizeable foreign inflows.”

Elsewhere, Qatar index fell 0.7 percent to 13,416 points. Abu Dhabi index dropped 0.7 percent to 5,017 points. Dubai index fell 0.5 percent to 4,790 points.

Kuwait index rose 0.4 percent to 7,266 points. Oman index rose 0.2 percent to 7,336 points, while Bahrain index was flat at 1,477 points.

Meanwhile, Cairo’s benchmark rose 0.6 percent to a six-year peak at 9,444 points, despite declines in 18 of the 25 biggest stocks. 

Mobile operator Mobinil was the main support, jumping 7.9 percent although only 3,119 shares traded.

EFG Hermes fell 2.1 percent. The investment bank swung to a second-quarter profit, but that was insufficient to deter traders booking gains from Thursday’s three-and-a-half year high.

In Qatar, Mesaieed Petrochemical plunged 7.8 percent after the company said it would not now be included in MSCI’s All-Country World Index, contrary to an initial MSCI statement last week. The stock had surged 5.0 percent to a five-month high on Thursday in the belief that it would be included. 

MSCI also said at the end of last week that it would raise the weightings of Qatar National Bank, Industries Qatar and Qatar Islamic Bank in its emerging market index. It is taking that action because Qatar has said foreign ownership ceilings will now be calculated as proportions of total shares outstanding, not as proportions of free floats.

However, EFG Hermes estimated MSCI’s move would attract only about $100 million of passive funds at the end of this month, mainly into QNB and IQ - not a lot of money for a market with a capitalisation of nearly $200 billion.

Doha’s index declined 0.7 percent on Sunday in a broad sell-off.

Abu Dhabi’s index had gained in five of the preceding six trading days but could not sustain this momentum and it also fell 0.7 percent as traders sold banking stocks.

First Gulf Bank dropped 1.3 percent, easing from Thursday’s record peak, while National Bank of Abu Dhabi and Abu Dhabi Islamic Bank lost 2.0 and 2.9 percent respectively.

FGB and some other banking stocks had outperformed recently, with upbeat earnings spurring long-term investors to buy in ahead of year-end dividends, said Marwan Shurrab, fund manager and head of trading at Vision Investments Dubai slipped 0.5 percent. Volatility has declined markedly - the measure has moved within a 230-point range in August, compared with a range of about 1,200 points in July - and lackluster trading looks likely to persist this week.

“The market is in a consolidation phase,” said Shurrab.

He predicted United Arab Emirates markets would remain quiet until September, although trading volumes may increase towards the end of August as some investors take positions in anticipation of a pick-up in the following month. –

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