GCC MARKET

TADAWUL RALLIES AS INVESTOR CONFIDENCE SURGES

Gulf markets have been rallying over the past five months, with Saudi Arabia’s Tadawul All Share Index among the leading performers.

The MSCI GCC Index has soared 19.1% in the first five months of the year, amid continuing economic recovery, strong stimulus packages and higher commodity prices, which have fuelled a broad-based rally.

The Tadawul has been among the emerging markets’ star performers, rising 21.4% from January to May, and has surpassed the psychologically important 10,000-point barrier. The index’s market cap has also been eyeing the SAR 10,000-billion mark, and stood at SAR 9,655 billion by the end of May.

The rally has been evident across the region. Abu Dhabi stock market has rocketed 30% during the first five months of the year, with Dubai up 12.3%, and Kuwait’s Premier Market Index also rising 11.4%. Indeed, all the Gulf markets are in positive territories, with Oman up 5.3%, Qatar rising 3% and Bahrain increasing by 2.5%, year to date.

Regional markets have taken their cue from global indices, which are soaring on prospects of reopening of businesses across the world and monetary and fiscal stimulus being injected into global economy, even as the pandemic persists.

The S&P 500 index stood at 11.93%, year to date, and is up 24.16% from its pre-COVID-19 (19 February 2020) closing high.

“The Dow also broke through 35,000 for the first time (10 May 2021, 35,091.56), but it did not close there; it ended the month at 34,529.45, up 1.93%… Over the three-month period, the Dow was up 11.63% (12.18%), up 12.82% (13.76%) YTD, and up 36.03% (38.79%) over the one-year period,” according to S&P Global Ratings.

 

TADAWUL IPO

The momentum in the kingdom’s financial markets continues unabated. In April, the Saudi Stock Exchange, or Tadawul, said it was creating a holding company named Saudi Tadawul Group.

“This transformation marks a new chapter in the group's history and signals its readiness for the IPO in 2021,” the exchange said.

The holding company will become the parent company of four subsidiaries, namely the Saudi Exchange, a dedicated stock exchange business; the Securities Clearing Center Company (Muqassa); the Securities Depository Center Company (Edaa); and Wamid – a new innovative applied technology services business, focused on providing innovation and nascent technologies to the capital markets industry through pragmatic innovation.

“The group will benefit from the integration and synergies between its subsidiaries, ensuring efficient intra-group operations across the organisation. The operational independence of each subsidiary will create an agile environment supporting rapid responses to evolving global and local market trends,” the exchange noted

The Tadawul’s efforts to deepen its expertise and create more financial and investment products have already had a transformational impact on the kingdom’s financial markets.

Increased listing of government fixed income securities and exchange-traded funds investing in government sukuk has enhanced liquidity of the domestic financial markets.

In addition, the inclusion of Saudi stocks into the FTSE Russell Emerging Market Index in the first half of 2020 has also been beneficial for the market.

To boost the market’s liquidity, the Saudi Capital Market Authority launched the country’s first exchange-traded derivative product – MSCI Tadawul 30 index (MT30 Futures) – in the third quarter of 2020, kicking off derivatives trading in the kingdom.

“The launch of the first MT30 Futures is another milestone achievement that is expected to increase equity volumes traded and attract regional and international capital by adding more depth and breadth to the products offered in the market,” the Saudi Central Bank, or SAMA, said in its Financial Stability Report. “It is also a key milestone for Vision 2030.”

The Tadawul saw three initial public offerings last year, and more are on the way.

“More listings are expected in 2021 as 20 companies with applications for listing are currently being processed,” SAMA noted its report.

Meanwhile, secondary equity rights issues rose to SAR 6 billion last year, compared to just SAR 1 billion in 2019.

Debt markets have also seen robust activity, with the value of debt instruments traded rising from SAR 5.1 billion in 2019 to SAR 37.5 billion in 2020, an impressive growth rate of 640%.

“Increase in private sector debt issuance from SAR 8.3 billion in 2019 to SAR 28.0 billion in 2020, which represents a growth rate of 236%” has contributed to a surge in market activity, the SAMA report noted.