The Saudi stock market has rallied by 17 percent since the start of 2012, Al Rajhi Capital said in its latest Equity Market Report. It noted that despite the improvement in the global macroeconomic environment as well as corporate profits, speculation has been the driving force behind the rally and record volumes make it more substantive. Further, the divergence between the Saudi market and S&P 500 during the last month (TASI +10.4 percent while S&P500 was just +1.4 percent) supports the view that retail investors and speculation are driving the market as they seem to have overlooked the global macroeconomic developments. The report pointed out that retail investors prefer speculation and are willing to participate on such activity, given the scenario of a market rally and positive news flow. Though retail investors haven't responded to strong profits and cheap valuations in 2011, they have started joining speculation bandwagon in late 2011. Equity investments and the interest increased manifold, which will trigger even a further increase in retail participation over the next few months. Since the start of 2012, there has been a huge jump in traded volumes and value for TASI, especially for the smaller sectors like real estate, transport, and insurance. Smaller sectors have reported a 100-300 percent increase in volumes while the large sectors such as petrochemicals and banking sectors reported a rise of 40 percent and 74 percent respectively. Value traded also showed a similar trend with smaller sectors accounting for a sharp rise. It clearly shows retail investors' preference considering that these small sectors represent 8.4 percent of total market cap, while they have comprised 32.9 percent of total value traded YTD. Over the last 2-3 months, the volumes in Saudi Arabian market increased considerably making the rally more substantive and credible. The volumes were up 260.4 percent since the start of the year and touched 781 million on March 12, 2012, while in value terms it was at a multi-year high with value of SR16 trillion, up 193.5 percent since the start of the year. Retail investors have a dominating presence and now account for more than 92 percent of the overall volumes.which is also a multiyear record.
