Market reaction to Saudi Aramco listing ‘far better than expected’: Analysts

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Saudi Aramco’s initial public offering has gone far better than expected, analysts told Al Arabiya English on Wednesday.

Saudi Aramco’s share price shot up to 35.2 riyals ($9.39), the maximum permitted by the 10 percent fluctuation limit, almost immediately when it began trading on the Saudi Stock Exchange (Tadawul) on Wednesday, valuing the company at $1.88 trillion, dwarfing any other company in the world.

“The market reaction on day one has been far better than expected,” said Vrajesh Bhandari, senior portfolio manager at Al Mal Capital said.

Following its listing, Aramco’s stock price stayed at 35.2 riyals throughout the day, suggesting investor appetite. “We expect another good day and the stock should be able to hit the $2 trillion market capitalization mark,” explained Bhandari.

“Optimism is there … the interest for the Tadawul listing is higher than expected,” added geopolitical analyst, and director of Dutch consultancy Verocy, Cyril Widdershoven.

Aramco’s initial public offering (IPO) saw the company valued at $1.7 trillion, below the $2 trillion valuation that authorities have targeted.

The market’s response was “very positive and excited,” said Mazen al-Sudairi, head of research at Al Rajhi Capital.

Al-Sudairi also noted that the price would be supported by Aramco’s inclusion in the MSCI and FTSE Russell emerging market indexes. “Our expectation … is about $4 billion [in inflows], $2.5 billion from MSCI and $1.5 billion from FTSE.”

His sentiments were echoed by Bhandari, who said that the stock would find further support from passive investor flows following its inclusion in the MSCI and FTSE indexes.

Last month, MSCI, which is followed by global funds that manage trillions of dollars in assets, recently said that if Aramco starts trading on or before December 12, it would add the company to the MSCI Equity Indexes from December 17. Otherwise, the company would have to wait to be considered for inclusion after January 5, 2020.

In regards to how Aramco sits in comparison to other oil majors, al-Sudairi said, “The financials of Aramco are much healthier, it’s incomparable with others.”

In addition, the fact that Aramco’s business, oil, is priced in dollars lends support to the company moving forward, he said. “The main concern of emerging economies is the currency. The riyal is pegged to the dollar, but [Aramco’s] business itself is a dollar business.”

“The Tadawul success is a major breakthrough as there was skepticism on the global financial markets … [they] were not looking at the clear geopolitical plays in place and the GCC support which should have been counted in,” concluded Widdershoven.

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