The rise in oil prices is good news for GCC economic growth and financial markets. The Saudi Taduwal index in particular could have a lot further to rise. Retail investor interest in the market is high. Investors are turning back to Saudi equities as the Saudi bourse rallied for a 10th session Wednesday, led by banks and petrochemical stocks, and all regional markets also rose amid bullish sentiment in equities. The benchmark Tadawul All Share Index rose 0.8 percent in active trading to a new high since September 2008, closing at 7,226.43 points. The recent rally in the equity market have stirred investors to even switch money from their love affair with property to equities. The valuation of the market remains at a reasonable level. The prospective PE of the market at around 14.0x is not that cheap relative to global markets. However for local investors maybe only a PE multiple closer to 18.0x would represent a point at which they might pull back from further purchases. The potential is for a further 30 percent upside in the market. The main reason behind is the weight of money. The KSA is generating strong GDP growth, strong money supply growth and strong profits growth. In 2011 government spending increased by 25 percent and strong retail sales growth has added to the momentum in the economy, that's before we even talk about the benefits of the recent rise in the oil price. Last year's growth is percolating down through the economy and leading to strong flows of capital into the stock market. The equity market is at risk of even more exaggerated rise to the upside. “A lot of Saudi investors are getting cash-rich and volumes on the market are huge, but there is selling as well,” said Farouk Miah, acting head of research at NCB Capital. “It's not purely speculative and it's a good sign of the market's maturity.” Alinma Bank jumped 7.4 percent, Samba Financial Group gained 2 percent and Al Rajhi Bank climbed 0.6 percent at Wednesday close. Zain Saudi gained 1.3 percent and was the second most active stock after Alinma. Sources said the telecoms operator was looking to refinance its $2.5 billion Islamic syndicated loan that matures in July. “The Saudi index has not reached the levels it saw in the first half of 2008. There is still room for upside, as Saudi catches up with those markets,” an analyst noted. He said the index could reach levels of 9,000 - 10,000 points, depending on first and second-quarter earnings. The rapid rise in equity markets has caught many of the professional managers out.
