The Saudi stock market is scaling new highs. After surpassing 10,000 points repeatedly over the past year, the Tadawul gained further strength with an 8.8% increase in January.
The Tadawul surged 30% last year, among the best performing markets in the region and miles ahead of the broader MSCI Emerging Market index, which grew just under 16% for the year.
This marked the sixth consecutive yearly gain for the Saudi bourse, a winning streak that stretches from 2016, when it expanded by 4.3%. Since then, the market has gained 0.2% in 2017, 8.3% in 2018, 7.2% in 2019, and an impressive 3.6% in 2020 despite the global pandemic outbreak that year.
The gains in 2021 were led by the media index, which jumped 127.6%, software and services with 103.3%, and banks with 61%.
Many drivers fuelled the rally.
The Brent crude oil benchmark enjoyed a 50% hike in 2021, which boosted business confidence in the country. Equally crucial was the spate of reforms that has energised almost every part of the economy. The rollout of giga-projects, and investments in transportation and logistics, manufacturing, entertainment, real estate, mining, and digital economies have also lifted the prospects of virtually all companies on the Tadawul.
IPO AND REFORMS
Tadawul saw more depth with 12 initial public offerings (IPOs). Nine of these newly floated companies were listed in the main market and three in the Nomu-parallel market.
This included the landmark IPO of the Saudi Tadawul Group Holding Company itself, aimed at further deepening the financial market. The company floated 36 million shares, representing 30% of its issued share capital. Final allocations were 70% to institutional investors and 30% to individual investors.
The IPO saw significant institutional and retail investor demand and was 121x and 4.4x oversubscribed, generating SAR 458 billion and SAR 5.02 billion, respectively. The offering shares were priced at SAR 105 per share, at the top of the company’s initial price range, implying a market capitalisation of SAR 12.6 billion at the time of listing.
“The listing marks a major milestone in the company’s growth story and is the natural next step as we emerge as a Saudi powerhouse with a global mindset that is able to leverage scale, innovation and execution capabilities to drive long-term value for all our stakeholders, achieving the nation-wide goal of the successful delivery of Saudi's Vision 2030 and aligned with the strategy of the Public Investment Fund (PIF),” said Tadawul chairperson Sarah Al-Suhaimi.
TADAWUL’S EVOLUTION
The market is also evolving. Last year, the Saudi Exchange, issued Environmental, Social, and Governance (ESG) disclosure guidelines to promote sustainable growth in the kingdom.
“The guidelines demonstrate Saudi Exchange’s continued commitment to support more than 200 listed companies and also prospective companies looking to list,” Tadawul said. “The launch of the disclosure guidelines highlights the exchange’s efforts to raise awareness on the importance of ESG within the Saudi capital market.”
The disclosure guidelines will build awareness of ESG, equip listed companies with tools to better navigate the ever-changing ESG landscape, introduce a selection of reporting options that companies can follow to measure their progress, and ultimately unlock the benefits from a sustainable approach to corporate growth.
The FTSE Russell, a leading global index provider of benchmarks, also announced last year that it had included Saudi Arabia in the FTSE Emerging Markets Government Bond Index (EMGBI) effective April 2022. It is projected to include 42 government sukuk, which comprise 2.75% of the index on a market value weighted basis.
“The Saudi capital market continues to grow at pace and the inclusion of Saudi Arabia in the FTSE Emerging Markets Government Bond Index highlights the importance of the enhancements made by the Saudi Exchange, which is a landmark achievement that will pave the way for its recognition globally,” said Mohammed Al Rumaih, CEO of Saudi Exchange.
GULF TO KEEP IPOS ROLLING
Other GCC markets are following suit, eyeing more IPOs, and looking at privatisation to energise their markets. The wider GCC markets rose around 35% in 2021, with Abu Dhabi’s main index soaring 68.2% for the year. Every other major GCC market also enjoyed double-digit gains in 2021.
2022 could shape up to be a robust year for regional markets, given strong growth prospects, high commodity prices, and government budgets that are aimed at stimulating the economy in the post-COVID-19 era.
However, valuations of some regional market are also stretched, which could compel investors to take a breather after a strong rally.
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