The recovery in the Saudi equity market will be sharp in the second half of this year and the Tadawul All Share Index (TASI) is forecast to have a 30 per cent upside, according to a research report.
"We expect the recovery to take place during the second half of the year and to be in the form of a rally after a period of range-bound volatile trading," investment bank Shuaa Capital said in its report released yesterday. The current market valuations are at an all time low.
"Signs of global economic relief are likely to be the main driver for the Saudi market in 2009. Any indication of potential recovery will increase the demand for oil and petrochemicals and this would further boost up the investor sentiment," said Mahdi Mattar, Head of Research and Chief Economist of Shuaa Capital, who authored the report. "We believe that the Saudi market has priced in a gloomy outlook along with limited pick up in demand for its petrochemical exports," the report said.
"While it is difficult to predict the timing of these forecasts, we expect the recovery to take place during the second half of the year and to be in the form of a rally after a period of range-bound volatile trading.
The report, which focused on the banking, petrochemicals and telecom sectors and stock markets, predicted flat growth for the Kingdom in 2009.
"Although we believe the Saudi Arabian market in 2009 will witness less activity in terms of IPOs as compared to 2008, we believe it will continue to rank top for IPO issuance in the Middle East region. However, we do not expect to see any further offerings from the downstream oil industry for the time being, as the harsh drop suffered by oil and other commodity prices makes such ventures less attractive. However, some companies in sectors that are currently deemed less desirable such as real estate and the downstream oil industry, which might need to raise capital, would probably revert to private placements. We anticipate a significant increase in number of such deals throughout the year."
Real GDP growth in Saudi is estimated to slow down to around 0.33 per cent in 2009, after recording a growth of 4.2 per cent in 2008. Nominal GDP is forecasted to post a 24 per cent year-on-year decline in 2009, mainly due to precipitous decline in oil prices, as well as oil production cuts.
Overall, these trends support slower growth and squeezed profitability for Saudi banks. The report expects growth rate for deposits and loans for 2009 at a conservative 11.1 per cent and 9.3 per cent, respectively. It sees strong upside potential should oil prices recover and the Saudi Arabian Monetary Agency further relaxes current regulations. Despite looking low in absolute terms, these numbers, relative to GCC peers, will likely be marginally stronger as Saudi Arabia providing the best investment climate in the region for the medium term.