Investors anticipate Saudi market bonanza

The Saudi equity market is set for a boost as it heads for possible inclusion in MSCI’s emerging market index in 2018.
“In the meantime, active investors could reap early gains as corporate earnings should start increasing this year,” said Shakeel Sarwar, head of asset management at SICO BSC (c).
He added: “The market has moved sideways in the first half of 2017 after the spectacular 30 percent rally late last year. However, the latter part of the second half could again be an interesting period for the market. The key catalysts for another rally are going to be FTSE and MSCI related developments. With FTSE set to announce its country classification review in September, market participants estimate that it can result in regular inflows from September onwards.
“MSCI upgrade is expected next year but positive news flow on this front will keep coming and sustain the interest of active fund managers in the market. Large caps which are expected to be the biggest beneficiaries of such flows are trading at attractive multiples and should do well in general versus the overall market going forward.”
Sarwar expects corporate earnings to start recovering during the second half of the year, supported by better oil prices and on-going economic reforms.
SICO expects many stocks to benefit from cyclical trends and further structural reform efforts.
SICO Kingdom Equity Fund invests exclusively in Saudi equities. Against the Tadawul return of 3 percent during the first six months of 2017, the fund has returned 7.6 percent during the same period including a cash dividend of 5 percent. The fund has posted returns of over 55 percent in the last 5 years compared to a modest 10 percent return for Tadawul during this period.
“With consumption relatively subdued, we are looking at well-managed companies that will benefit directly from a more diverse, more open economy as the Kingdom moves away from its reliance on petroleum,” said Sarwar.
He added: “Falling oil prices were tough on the domestic economy over the last three years. Astute firms have cut costs and gained market share. There are also selective opportunities in the survivors — the best-run telco and consumer stocks. A round of banking mergers should benefit investors too.”