Articles Feed

‎Saudi capital market’s momentum likely ongoing in H2 2024: HSBC Saudi Arabia

Sun, 21 Jul 2024 15:22:00 GMT

‎

Faris AlGhannam, CEO and Board Member ofHSBCSaudi Arabia

The Saudi capital market is expected to see continued momentum in H2 2024, backed by a strong pipeline of initial public offerings (IPOs), announced projects, and investment opportunities, which is seeing higher investor engagement by local and foreign players at record highs compared to previous years, Faris AlGhannam, CEO and Board Member of HSBC Saudi Arabia, said.

Speaking to Argaam on the sidelines of the HSBC GCC Conference in London, AlGhannam added that the Saudi stock market has seen a robust first half to the year, outperforming what had been witnessed in 2023, with the increasing depth and liquidity providing positive momentum for the second half of 2024.

He also explained how the Kingdom’s underlying economic transformation plan and the steady stream of reforms fuel new foreign investments are driving the Saudi capital market to become the largest and most liquid among GCC nations this year.

Foreign investors are increasingly focusing on emerging markets as part of their international strategies. Saudi Arabia’s 2019 inclusion in the benchmark equity emerging markets investment indices by MSCI, FTSE Russell and SP Dow Jones, paired with the inclusion in the EMBI sovereign bond index, accelerated inflows into the local capital market.

Moreover, the increased interest from foreign investors helped the Tadawul main market to grow by more than 11% in 2023, more than double the return on the MSCI benchmark.

According to AlGhannam, HSBC, being the largest and leading international bank in the Kingdom, has advised on more than 10 transactions in the first half of the year, including leading Dr. Soliman Abdulkader Fakeeh Hospital Co.’s (Fakeeh Care Group) $764 million IPO, the largest equity offering of its kind this year and the first ever by a Saudi healthcare player, in addition to Saudi Aramco's multi-billion dollar secondary share sale.

He also expected further innovation and development in the Kingdom’s debt, sukuk, and bond markets, which have the potential to pave the way for newchannels for both domestic and foreign capital.

HSBC Saudi Arabia has been at the forefront of facilitating foreign institutional investment in the local capital market, including becoming the first Qualified Foreign Investor in 2015,while most recently enabling the launch of Asia’s first Saudi Arabian exchange-traded fund (ETF).

According to AlGhannam, Saudi Arabia’s shift to a $1 trillion G20 economy marked a pivotal opportunity forattracting internationalcorporates and investors.

The HSBC GCC Conference in London is part of a global program that includes engagement across Asia, Europe and the US to supportglobal clients in exploring opportunities in the Kingdom. Its network covers 90% of the world's trade and capital flows, with an on-the-ground presence in 56 markets and territories.

‎HSBC optimistic about Saudi market as attractive emerging market

Thu, 27 Jun 2024 13:17:00 GMT

‎

HSBC has a positive outlook on the Saudi Exchange (Tadawul)as itis one of the most attractive emerging markets for long-term return on investment, saidCamille Asmar,Head of Equity Sales, Europe Emerging Markets at HSBC Global Banking and Markets.

In an interview with Argaam on the sidelines of theHSBC GCC London Conference, Asmar explained that this optimism is due to strong reform programs, clear structural frameworks, privatization programs, and economic diversification away from oil.

These factors make the Saudi market attractive to long-term investors, offering significant returns anddividends, Asmar said, adding that investors previously achieved very positive returns and attractivedividends.

HSBC is working to attract more foreign investments to the Saudi market through public offerings, including its recent contribution to the secondary offering of Saudi Arabian Oil Co. (Saudi Aramco).

Asmar mentioned that the financial sector experienced sell-offs this year, providing excellent investment opportunities. He also highlighted opportunities in the energy sector and the small and medium enterprises sector, including healthcare, education, and sports, which offer various investment opportunities not usually available in other emerging markets.

He went on to say that the weighting of theSaudi marketin international indices like MSCI and FTSE is increasing, reaching up to 4%, which makesit difficult for investors to ignore the market. When combined with other Gulf markets, it reaches 8-10%, making the region an important part of the emerging markets, comparable to countries like Brazilor South Africa.

The Saudimarket has seen strong activity in initial public offerings in recent years,and this activity is expectedto continue, particularly in the third and fourth quartersas well as the nextyear, Asmar noted.

He also believes that there are new mechanisms in the market attracting significant attention from investors.

‎IPOs, pre-Eid selling weigh on Saudi market: Analysts

Sat, 22 Jun 2024 11:59:00 GMT

‎

Tadawul trading screen

Analysts surveyed by Argaam said that the market experienced negative performance last week, with the Tadawul All Share Index (TASI) dropping by 4% year to date. This drop is attributed to pressures from IPOs, falling oil prices, the Federal Reserve meeting, and pre-Eid Al-Adha selling.

Analysts expect the market to recoup losses after the Eid holiday, backed by positive second-quarter results and higher oil prices. The market is likely to break 12,200 points by the end of July.

George Pavel, General Manager of Capex.com Middle East

George Pavel, General Manager of Capex.com Middle East, stated that the Saudi market ended in the red territory last week after starting the week on a positive note. The market retreated after hitting the resistance level at 11,900 points. This came after Aramco's stock positively influenced the market on the first trading day, alongside a recovery in oil prices. However, traders' caution before the Fed meeting weighed on the market.

Pavel explained that the Federal Reserve's stance negatively impacted market sentiment, despite a positive decline in the inflation index, further dragging down the Saudi market on Thursday. Additionally, the end of the week's session saw sell-offs before the Eid al-Adha holiday, with the market being closed for a week. This reflects a dampened market sentiment after betting on a positive outcome from the US central bank meeting.

Hesham Abou Jamee, CEO ofMekyalFinancial Technologies

Hesham Abou Jamee, CEO ofMekyalFinancial Technologies, pointed out that the market witnessed unprecedented events in the past two weeks as a large number of companies listed within just two weeks with a market value exceeding nearly SAR 25 billion. The market also witnessed the secondary offering of Saudi Aramco, which raised about SAR 42 billion.

Year to date, the market closed 4% down on Thursday, Abou Jamee said, expecting the market to rebound once the IPO pressures subside.

Bassam Al-Obaidfinancial markets expert

On the other hand, financial markets expert Bassam Al-Obaid, said that market liquidity in the last session declined compared to previous days. Still, the liquidity outflows remained higher than inflows, keeping the market in a downward correction wave.

Technical Market Performance

Abou Jamee predicted that the market would maintain its positive trend in the coming weeks, regaining most of its losses since the beginning of the year. He expects the market to break the 12,200 -12,500 point range before the end of July, driven by banking support and the positive second-quarter financial results.

On the technical level, Pavel said that TASI hit a weekly peak of 11,954 points on June 10, before closing below the resistance level of 11,900 points. The market's halt at 11,900 points indicates that the downward trend may persist and that the market sentiment is still negative, potentially leading to further sell-offs.

Pavel added that if these pressures continue, support levels may remain at 11,450 points, followed by 11,250 and 11,000 points. However, if the index rebounds, it may face resistance at the 11,900, 12,000, and 12,200 point-levels.

On the other hand, Al-Obaid noted that the market is only moving sideways between 11,450 and 11,950 points. The higher point forms a resistance zone, while the lower forms a support.

Breaking the support could push the market to 11,250 points, representing 61% of the entire wave the market has started since the end of 2023.

If the index goes beyond 11,950 points, the market could head towards 12,300 points, which marks a very strong resistance zone, expecting increased support to 450 points on pressures from oil prices and other factors.

Sector Performance

Al-Obaid highlighted that the energy sector is the biggest decliner among peers. The banking sector is the most likely to recover among peers after Eid, but may need some time. This, however, depends on the end of the current correction.

He added that the banking sector might respond to expectations of imminent interest rate cuts by the Federal Reserve in the second half of the year.

On the other hand, Pavel said that sector performance was mixed, with both banking and energy negatively weighing on the market due to the weights of companies like Aramco and Al Rajhi Bank. Utilities was one of the worst performers, hurt by companies like ACWA Power.

Pavel expects the energy sector to be among the most affected after the Eid holiday, as strong oil price rebounds could impact energy companies and overall market sentiment.

The market saw the debut of three companies on the Main Market, including Al Taiseer Group Talco Industrial Co. (TALCO), and RasanInformation Technology Co., bringing the number of new entrants on TASI to eight YTD.

As the Saudi market continues its IPO momentum, increasing market liquidity and size, this reflects growing investor confidence in the market. Continued demand and successful IPOs also contribute to market growth, aligning with the Kingdom's strategic plans and objectives.

‎Pros and cons of moving to T+1 settlement in Tadawul

Wed, 19 Jun 2024 12:45:00 GMT

‎

The Saudi Exchange (Tadawul) implemented substantial changes to its settlement system, shifting from immediate settlement (T+0) to settlement two business days later (T+2) on April 23, 2017.

This adjustment was made in collaboration with the Capital Market Authority (CMA) to fulfill the eligibility requirements for global market indices, such as the MSCI Emerging Markets Index. The decision, announced in 2016, aimed to bolster the CMA's strategic goals.

Here are the key differences between T+0 and T+2 settlement of securities transactions in Tadawul:

Key Differences Between T+0 T+2
Description	T+0	T+2
Transactions Settlement or cash withdrawals	Same trading day	Two business days later
Dividend Record Date	General assembly meeting date	Two business days after general assembly meeting
Cash Dividend Payment Date	Set by general assembly	Within 15 days of general assembly meeting
Transaction Execution	Immediate	Immediate
Order Entry	Immediate	Immediate

The shift to the T+2 settlement system allowed Tadawul to achieve goals for inclusion in emerging market indices.

The CMA stated that this move enhances investor asset protection and ensures accurate transaction verification and error handling, if any, thereby facilitating the introduction of new financial products, including derivatives.

While most emerging and advanced market exchanges operate on a T+2 system, financial markets such as the United States, Canada, Mexico, and Argentina have recently moved to settle transactions within one business day as of late May. However, markets like the United Kingdom, the European Union, and Australia are still considering transitioning to a T+1 system.

Asked about the benefit of the T+1 system and whether it could be implemented in Tadawul, Dr. Fahad Al-Huwaimani, a member of the Saudi Economic Association (SEA), said that Tadawul followed the lead of the U.S. and other global markets in 2017 by adopting a T+2 settlement system.

With Saudi Arabia's market evolution, international index inclusion, and openness to foreign investors, there is now stronger justification for implementing a T+1 system, Al-Huwaimani explained to Argaam.

"I don't believe Tadawul will face any difficulties in transitioning to a one-business-day settlement, especially considering that prior to 2017, the Saudi market operated on a same-day settlement system. This indicates that procedurally, technically, and organizationally, the process is well-known and tested," he said.

Under the new regulations, T+1 settlement means delivering securities to the buyer and depositing the sale amount into the seller's account by the end of the next business day, offering clear benefits to both parties, Al-Huwaimani added.

Currently and previously, the sale amount is deposited into the seller's account immediately, and the securities are deposited into the buyer's account, allowing both parties flexibility, except for withdrawing the amount after the settlement period.

Some believe that the long settlement period allows the financial market to reverse errors or misleading transactions. While partly true, it does not require much time, and the financial market has ways to deal with exceptional situations without being affected by the length or shortness of the period, the SEA member added.

Al-Huwaimani emphasized that shortening the settlement period offers numerous benefits to the market and participants by reducing counterparty risk, especially given the market's size, complexity, and diversity of its participants. This reduces the likelihood of failure, not the seller or buyer, but brokers and other market components.

This increases the risk on settlement and clearing positions, which bear the burden of any party's failure. It also reduces the cost of guarantees used, which remain frozen until the end of the settlement period, constituting an additional burden on their providers, he concluded.

‎Demand for Aramco's secondary offering offsets market woes: Analysts

Mon, 03 Jun 2024 18:50:00 GMT

‎

Tadawul trading screen

The Saudi Exchange's (Tadawul) main index, TASI, ended May in the red, logging losses of about 900 points, or 7.2%, amid anticipation of news of Saudi Aramco's secondary offering, geopolitical developments in the region and the expected changes to interest rates by the US Federal Reserve.

A number of analysts told Argaam that the selling pressure in May was normal due to Aramco's secondary offering, alongside continued high inflation and interest rates.

They also pointed out that the demand for Aramco’s secondary offering was a positive factor in offsetting the negative impacts and returning liquidity to normal levels.

Saudi Aramco's secondary offering

Jassim Al-Jobran, Head of Research at AlJazira Capital, said that it was normal to see pressure on the main index during the past weeks due to the secondary offering of Saudi Aramco. This would require the provision of liquidity from investors, whether funds or individuals, which caused selling pressure due to uncertainty, previously on the timing of the offering, which had a negative impact on the index.

The news at the beginning of the week regarding the strong demand for the secondary offering in the first hours was a positive factor that helped mitigate most of the negative impact on market movement and attracted additional foreign investment in the Saudi market. Liquidity levels are expected to return to their normal state after the end of the secondary offering period, he added.

For his part, Khaled Al-Zaidi, a financial advisor, said that TASI fell by 950 points in May 2024, which is the largest monthly decline in the past two years. The decline was due to the secondary offering of Aramco shares, which significantly impacted the movement of the general index.

He indicated that the decrease of SAR 1 in Aramco’s share price negatively affects the value of the main index by about 156 points.

Yasser Al-Mutlaq, Head of Investment Portfolios at Mayar Financial, believes that the sale of additional shares in Aramco is a major event and will attract new investments and boost liquidity in the Saudi market.

Selling pressure on TASI

Despite positive growth in the profit of Tadawul-listed companies (excluding Aramco) by about 8% in Q1 2024, recording the first growth year-on-year after five consecutive quarters of declines, the recent pressures on Tadawul may not solely be due Aramco's secondary offering Al-Jobran said.

He added that the recent regional geopolitical tensions, oil price fluctuations and their impact on oil revenues, as well as their implications on the prospects for the economy and local growth may be considered among the key pressure factors.

Al-Jobran pointed out that optimism in profit expectations was impacted by inflation rates in advanced economies remaining above their target rates, delay in interest rate cuts, as well as impact on costs of deposits in the banking sector and corporate loans.

Al-Zaidi added that the market sees Aramco's huge offering as an opportunity to correct the movement of the general index, and to correct the share prices of some companies that have reached high levels with high profit multiples.

The main index fell by 900 points. Are there investment opportunities?

Banking sector

The recent decline in TASI, which exceeded 9% from its highest levels recorded last March, has provided attractive investment opportunities in several sectors, most notably the banking sector, in light of exaggerated selling trends without fundamental reasons related to financial performance. These stocks are not expected to continue trading at a discount for a long time. The continued growth of the sector’s credit portfolio and expectations of the positive impact of lower interest rates in the future on the cost of deposits are considered factors supporting the continued growth in future performance, especially for some banks with greater exposure to fixed lending rates and high-cost deposits, according to Al-Jobran.

Al-Zaidi stated that the banking sector put pressure on TASI, as the sector index corrected by about 1,100 points in May 2024, led by Saudi National Bank.

Telecommunications sector

Al-Jobran stated that the continued growth momentum in the telecommunications sector, both from the business sector due to structural transformations in the local economy towards digitization, as well as the growth of the consumer sector supported by the volume of penetration and the changing consumption pattern in data and the Internet, provide good opportunities, especially after the notable decline in some shares of this sector.

Transportation sector

Al-Mutlaq pointed to the factors underpinning growth in the transportation sector, which are represented by government support through supporting tourism and expanding the logistics and business sector, in addition to new projects such as the opening of the Riyadh Metro, which is expected during the current year, and the numbers of tourism and Hajj inflows, which increases the demand for transportation companies.

Al-Mutlaq preferred SAL shares for high growth, strong profit margins, and market share size.

For his part, Al-Zaidi pointed out the annual growth observed in revenues, operating income, and net income before one-off items for Budget Saudi during the last three years, adding that the company saw the highest figures for the previous financial items in 2023 compared to the last 20 years.

Health and Pharmaceuticals sectors

Al-Mutlaq said that the price correction in health and pharmaceuticals companies created investment opportunities in some of those companies, considering that companies that invest in innovation and expand their services may see significant growth.

He added that Al-Mouwasat posted high-profit margins and a low P/E ratio compared to the sector, in addition to its plan to increase the number of clinics.

Petrochemicals sector

The state of uncertainty still dominates the outlook for the petrochemicals sector due to the lack of decisive indicators for the sector’s recovery so far. The recent recovery levels in the average selling prices of products, the increase in inventories in China, and expectations of a decline in feedstock prices in the coming summer period are factors that may justify taking the risk in exposure to some sector stocks that have a diversified portfolio of products and feedstocks, in light of the sharp decline in the share prices of these companies, with some of them falling below their book values in the current period, said Al-Jobran.

Cement sector

Al-Jobran said that conservative sentiment still prevails in the cement sector, in light of fears of rising production costs over the coming quarters, despite the sector’s consolidated profits exceeding average market expectations as a result of the rise in average cement selling prices.

There are fears of an additional increase in feedstock prices in the coming years, and fears of a return to the price war between some companies, especially with the lack of solid indicators of demand. Therefore, exposure to sector stocks should be selective, and based on the size of the market share and the type of feedstock used by the company, he added.

Consumer services sector

According to Al-Mutlaq, the restaurants sector faces huge challenges due to intense competition and the entry of new players. In contrast, the education sector is expected to witness continuous growth with the privatization of the sector and increased demand for private education.

‎Fitch says Saudi Arabia's debt market to hit $500B in 3 years

Wed, 22 May 2024 15:38:00 GMT

‎

Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings

The size of Saudi Arabia's market for debt instruments in all currencies reached $360 billion in 2023, said Bashar Al-Natoor, Global Head of Islamic Finance at Fitch Ratings, highlighting the surge of the debt market compared to the past five years.

In an interview with Argaamon the sidelines of the Arab Federation of Capital Markets conference, Al-Natoor expected that the size of the debt market in the Kingdom would reach about $500 billion within two to three years.

For more exclusive interviews

Hewent on to say that there are serious plans from theSaudigovernment and its related sectors to develop the debt market and diversify funding sources away from relying mainly on oil revenues.

The issuance of government bonds is greatly encouraged, not only to expand investor base but also tohelpindividuals saveand achieve investment returnsthroughpurchasing government financial instruments, he added.

Fitch studied a number of sukukand bonds with similar characteristics and risks to compare their returns and performance, Al-Natoor explained. The study found that there was a strong correlation between them in most periods, and thespread in return margins of sukukand bonds were not significantly different.

As for the impact of lower interest rates on the debt market, he believes that the expectedinterest rate cut bythe US Federal Reserve could push the pace of issuances.

Al-Natoor also stressed the importance of the Kingdom'songoing efforts tostrengthen its legislative and regulatory framework to attract more investments and support the development of the debt market.