Saudi Arabia stocks continue uptrend

Most other Middle East markets moved little in modest trade as investors returned from long Eid holidays.

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Saudi Arabia’s stock market continued rising on Monday as it reacted to last month’s news that it would open to direct foreign investment. Most other Middle East markets moved little in modest trade as investors returned from long Eid holidays.

The Saudi All Share Tadawul Index rose for a sixth day, gaining 1.0 percent to a six-year high of 10,403.81 points, in a rally ignited by the announcement that foreign institutional investors would be permitted to buy stocks from the first half of next year.

However, the focus of trade switched from big petrochemical firms and banks likely to be favored by foreigners to second-tier stocks such as property firm Dar Al Arkan, up 0.9 percent.

PetroRabigh climbed 3.7 percent on Sunday, breaking above this year’s peak hit in early June, after saying Saudi Aramco and Sumitomo Chemical would transfer ownership of a planned SR32 billion ($8.5 billion) petrochemical facility to it.

GCC stock markets had seen strong rallies in the first five months of 2014, led mainly by gains in Qatar and UAE. The decision by MSCI to upgrade Qatar and UAE to ‘emerging market’ status from ‘frontier markets’ gave a strong boost to regional markets.

In addition to that, the outlook for the GCC economies remained favourable especially when compared to emerging markets that continued to show signs of weakness.

Solid fiscal position supported by high oil prices also promised a solid base for continued strong development spending.

Strong corporate profitability, which picked up and is expected to continue to improve, also fed into the regional rally, NBK’s July update on GCC equity markets said.

GCC equity markets experienced a correction in the second quarter of 2014 (Q2, 14) following a very strong performance earlier in the year.

“The S&P GCC index was off by 1.8 percent during the quarter, reducing gains from the beginning of the year to 8 percent. The much anticipated correction appeared to be triggered in part by the deteriorating situation in neighboring Iraq.While regional markets underperformed their international counterparts in Q2, they continued to fare relatively better year-to-date, thanks to their strong performance during the first five months of the year. As of the end of June, GCC markets’ capitalization stood at $1.06 trillion, having shed $21bn in Q2, 14,” the report said.

The political developments in Iraq have been main factor behind the retreat of regional markets. However, other country and stock specific factors helped fuel what has been seen as an overdue correction.

In Qatar, talks related to the hosting of the World Cup event planned for 2022 encouraged the correction on the local bourse.

Markets in the UAE saw the selloff begin when the central bank warned in early June of a possible bubble in the residential real estate markets in Dubai and Abu Dhabi.

In Dubai, this was exacerbated when a surprise resignation at a major blue chip company triggered further selloff. Among regional markets, the Dubai Financial Market (DFM) saw the biggest correction in Q2, 14, declining 11.4 percent.

Even with this decline, DFM remained the best performing market in the region year-to-date. By contrast, Bahrain Stock Exchange (BSE) was the best performing market in Q2, 14, gaining 5.2 percent.

Liquidity in the market continued to improve in 2014. GCC daily traded volumes averaged $3.9bn in Q2, up 51 percent from the Q1, 14 average.

The rise in volumes was particularly significant in UAE and Qatar as fresh liquidity entered these markets in anticipation of the MSCI upgrade.

“GCC markets have been quite volatile since the end of Q2, 14. Particularly, Dubai’s market gained 16 percent in the first week of July.

Investors remain quite optimistic about the region despite the strong declines seen in June as the GCC continues to have a positive outlook in the medium term”, NBK analyst Sara Ghazzawi noted.

This article was first published in Saudi Gazette.