Saudi- Is investor confidence back in Tadawul? 

(MENAFN - Arab News) The Saudi stock market showed a stellar performance in the first quarter of this year. The Tadawul All-Share Index (TASI) hit a three-and-a-half year high and volumes have surged significantly. This reflects a clear and abrupt revival in investor confidence driven by a combination of local, regional and global factors.

At the end of the first quarter, the Tadawul index closed at 7,835.15 points, gained 1,272.3 points or 19.39 percent over the close of the same period of the previous year. On an YTD basis TASI registered a positive increase of 22.09 percent (1,417.42 points), according to Tadawul's Q1 Statistical Report.

Highest close level for the index during the period was 7,835.15 points as on March 31.

Total equity market capitalization at the end of the first quarter of 2012 reached SR1.54 trillion (410.56 billion), increased by 16.72 percent over the same period of the previous year.

The total value of shares traded reached SR684.71 billion (182.59 billion), increasing by 163.07 percent over the same period of the previous year.

The total number of shares traded reached 31.77 billion for the first quarter of this year compared to 12.21 billion shares traded during the same period of 2011, increasing by 160.26 percent.

The total number of transactions executed reached 13.48 million compared to 5.58 million trades during the 1st quarter 2011, increasing by 141.38 percent, the Tadawul report said.

Sami A. Al-Nwaisir, chairman of the board of ALSAMI Holding Group, said the first quarter performance was happening suddenly and without any expectations by the start of mid-February with the sudden take-off from the low bottom to increase in the traded value.

This cannot happen with people just deciding to go back after the stock market lost its trust since 2006. The start of this spark was and is by the first move of the fiscal policy (Ministry of Finance and its investments arms) when they decided to change the ownership of Riyad Bank shares from SAMA (Saudi Arabian Monetary Agency) to the Saudi Pension Fund worth SR2.3 billion. This started money to create a good turnover, and the multiplier effect of that turnover as a result of selling and buying at the same time is more than the actual amount of SR2.3 billion.

The other serious move, which is another signal to the market rather than actuality, was when the Capital Market Authority (CMA) and SAMA signed an agreement to allow direct foreign investors to the market.

"We are not surprised by this move by the Ministry of Finance because the stock market was acting as a lagging factor rather to leading indicators to all economic prosperity the Kingdom is witnessing these days," Al-Nwaisir said.

He said: "The private sector is also channeling the money from real estate to the stock market."

He added: "We are not sure yet about the classifications of the money invested in the stock market even though based on Tadawul information 93 percent of the money invested in the Saudi stock market is by individuals rather than institutions."

On Tadawul's performance, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said it is clear that Tadawul has had a landmark quarter after a generally disappointing 2011. Some of this is clearly structural and represents the market belatedly shedding the reservations that risk aversion that have held it in their grip for an extended period. "The market fundamentals right now look very attractive and are further supported by a favorable economic outlook," he said.

But it is also doubtless the case that some of the positive momentum is due to a potentially temporary constellation of factors.

"The regional outlook has improved for a whole host of reasons but the posturing around Iran remains a risk. Similarly, the global news flow has been far less alarming that during much of last year. The probability of an imminent relapse to the crisis mode in Europe and the United states has diminished but has not disappeared," Kotilaine pointed out.

Jadwa Investment said in its latest report that at the moment, bullish investor sentiment points to the TASI ending 2012 well above this level. Valuations look reasonable and unlike many markets the TASI is still below its close the day before the collapse of Lehman Brothers, despite the Kingdom's subsequent economic performance.

The largest sectors of the market - petrochemicals and banks - offer the best value. Most of the gains so far this year have been led by smaller sectors, with speculative investors pushing valuations to well beyond those justified by the fundamentals, the Jadwa report said.

Based on sectoral earning forecasts and expectations for the trailing price-to-earnings ratio at the end of the year, Jadwa expects that the TASI will end the year at 8,050. This is 7 percent above the current level.

The NCB Capital said in its report that daily traded value during the year so far has averaged SR10.3 billion, 149 percent higher to the same period in 2011.