GCC MARKET

SAUDI EQUITY MARKET SHRUGS OFF GLOBAL SELL-OFF

For most of the first half of the year, the Saudi Arabian market and its regional peers were among the world’s best performers.

A spirited economic recovery, strong commodity prices – including USD 100 per barrel for oil – meant that Gulf markets were staging a smart recovery.

The Saudi Tadawul enjoyed some stellar months in the first half of 2022, after the market had surged nearly 30% last year. The market rose 8.8% in January, 2.6% in February, posted gains of 4% in March, and another 4.9% in April.

The market quickly crossed the 11,000-point barrier in February and finished March at 12,494.7 points in April.

Since then, high valuations and global economic fears of a recession, high inflation, and geopolitical tensions have forced many global and regional investors to pause and assess the changing global economic landscape. The Tadawul fell 5.9% in May, and another 10.8% in June to wipe out some of the gains this year. Despite that, the market was still up 2.1% by the end of June. Still, compared to global peers, the Tadawul has fared well. The broad Global S&P index is down 21.33% this year, with emerging markets contracting by 17.5% in the first half of 2021.

Key markets of China (-12.76%), India (-16.43%), Egypt (-35.95%), and Taiwan (-25.01%) have fared far worse, due to a strengthening US dollar, which has weakened local purchasing power, and high cost of commodities. Lockdowns in China have also impacted the economy of one of the most consequential countries in the world.

IPO LISTINGS

There were 20 public listings of Saudi companies in 2021, including nine on Tadawul and 11 on parallel Nomu market. PricewaterhouseCoopers (PwC) expects to see around 50 listings this year and in 2023.

“In line with Vision 2030, we are currently witnessing a massive transformation within the kingdom. This will only accelerate the listing of government-owned assets within the infrastructure sector as part of Saudi’s privatisation initiatives, and fuel further activity in the technology, healthcare, food processing, and education sectors, which are currently underrepresented but have boomed during the COVID-19 pandemic,” PWC said. “The push toward the digital transformation of business models and technology capability-building has ensured that technology -focused deals remain at the forefront.”

With liquidity not an issue, “any ‘jewel’ asset coming to market (whether government or privately owned) will draw enough demand as long as the investors are clear on the asset’s equity story,” PwC noted.

A landmark IPO last year was the flotation of the Tadawul Group itself, which listed 30% of its share capital in November 2021.

The Saudi Tadawul Group is a key enabler to the pillars of Financial Sector Development Program and the kingdom’s vision 2030. Additionally, the group has a differentiated business model – integrated, scalable and diverse, and strong financial performance characterised by significant growth and increasing margins, which enabled the company to maintain a well-capitalised balance sheet and underpin its strong dividend potential.

This year, there have been eight IPOs on the Tadawul market, with another seven on the Nomu market, according to Tadawul data. Some of the major IPO were Retail Urban Development Co., Saudi Home Loans Co, Al Nahda Medical Co., and Al Dawaa Medical Services Co. According to Tadawul, Alamar Foods Company and Naqi Water Co. are also eyeing listings on the main exchange.

 

REGIONAL GROWTH

Abu Dhabi remains the region’s best performing market year to date (YTD). The market is up 10.4% in the first six months of 2022, despite a 6.8% decline in June. Among other major performers are Kuwait’s premier market index, which rose 7.9% YTD; Qatar and Bahrain were up 4.9% and 2.4%, respectively. Dubai expanded 0.9%YTD, while Oman’s Muscat Securities Market is the only regional market that reported a loss (-0.2%) in the first half of the year. Overall, the combined GCC stocks’ market capitalisation stood at USD 4.1 trillion by the end of June, compared to USD 3.38 billion during the same period last year.

The region’s price-to-earnings ratio remains competitive at 19.1 times trailing, although Saudi Arabia’s 20.5 times valuation is on the higher side.

Globally, equity markets remain in a tailspin, with central banks looking to raise interest rates to cool inflation, and global economic uncertainty weighing on investor sentiment. While GCC economies are enjoying high commodity prices, business and consumer sentiment could be impacted by high inflation rates and a more subdued global economy.