Saudi market hit by low confidence in 2009: Report

Saudi Arabia's stock market, by far the largest in the Middle East, underperformed most leading world exchanges in 2009 because of lack of confidence and investors' ignorance of domestic economic performance, a key financial company in the kingdom said yesterday.

But the Riyadh-based Jadwa Investments said the Saudi Tadawul bourse has largely rebounded since the beginning of 2010 and is expected to outperform key markets in developed countries through the year.

"There has been a clear disconnect between the performance of the stock market and the economy in Saudi Arabia compared to that in many leading global economies," Jadwa said in a study on Tadawul.

"Economic performance in the kingdom has been much better than in developed countries, but its stock market has underperformed. We think the main reasons for this are a lack of confidence, the small role of institutional investors and a lack of investor awareness of economic conditions."

Jadwa said the performance of Tadawul, which accounts for nearly a third of the total Arab market capitalisation, had been expected to be much better on account of what it described as the domestic growth dynamic within the Saudi economy.

Its figures showed the kingdom's non-oil private sector grew by 2.5 per cent in real terms last year compared to a contraction of 2.5 per cent in the US. "We would expect performance to be closer to that of emerging markets; however, the divergence here is even greater. The MSCI emerging markets index is 96.5 per cent above its low, also in early-March. Economic performance throughout the world has improved over the year, justifying some recovery in share prices from their lows, but the recovery remains fragile," it said.

"In contrast, non-oil private sector growth in the kingdom was not distorted by deliberate cuts in oil production last year and recorded growth… it is expected to increase to close to four per cent in 2010."

Furthermore, while most of the leading global economies have emerged from recession, performance will be damped in the medium term by the some serious underlying problems that the kingdom does not face, Jadwa said.

"Investor confidence in Saudi Arabia has begun to pick up this year and we expect the outperformance of the Saudi market so far in 2010 to continue.

The Tasi is up by nearly 54 per cent since its mid-March low. For the US S&P500, the gain is around 62 per cent."

It said those problems include the fact that much of the global recovery is the result of fiscal stimulus that has created unprecedented budgetary problems, with deficits exceeding 10 per cent of GDP in many leading economies.

"This level of spending is unsustainable and one of the key challenges for global policymakers next year is how to unwind the stimulus. There has also been a large stimulus in Saudi Arabia, but the kingdom has no budgetary problems and can call on net foreign assets of $390 billion (Dh1.4 trillion) to finance any deficits."

Another problem cited by Jadwa is that the deleveraging process in many leading economies still has a long way to run. It said this would prompt both the consumers and companies in developed nations to increase their savings and therefore spend a smaller proportion of their income.

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