The equity market in Saudi Arabia are poised for solid growth, thanks to the surging oil revenues and the Kingdom's strong fundamentals, Saudi investment bank Al Khabeer Capital said in a report. The Kingdom's robust economic outlook - 3.6 percent growth in real GDP forecasted by IMF - supported by buoyant oil prices and government's commitment to high levels of spending supports the equity growth story, the report said. "Saudi fundamentals and economy is still strong," added Sebastien Henin, portfolio manager at The National Investor. "I wouldn't be surprised to see some buyers come in if we lose another 3 to 5 percent. There is some money on the sidelines, ready to be invested in the market but it's about the timing. People who have missed the rally are looking to optimize their buys." In January, the Kingdom's Purchasing Managers' Index (PMI) rose to a six-month high of 60, underpinned by a number of large infrastructure projects, signaling a strong start to 2012. The Tadawul All Share Index (TASI), which has gained support from global cues after closing 18 percent higher YTD in 2012 (last close 7,568), is significantly lower than its pre-financial crisis high of 20,634.86, the report added. Al Khabeer pointed out that with significant spending in the Kingdom, cement and construction sectors were expected to benefit directly. Moreover, the underlying fundamentals of economy - such as being among the world's fastest growing population and a high ratio of young population - further contribute to growth in the financial, consumer and retail and real estate sector, where approval of the long-awaited mortgage law is an upcoming catalyst for this latter sector. On the other hand, the insurance sector (health insurance, in particular) is benefiting from progress in the regulatory environment, the Al Khabeer said in its outlook. Notably, the current ongoing surge in the TASI, after reaching a 42-month high in the beginning of March 2012, is supported by encouraging improvement in daily trading volumes, it added. Since the end of Ramadan (August 2011), the daily turnover has increased from the lows of SR2 to 3 billion and has tested SR15 billion levels at the higher end during this period, the Saudi bank said in its report. This major gain in volumes, higher than the historical trend, adds to investor confidence as the market appears to be on a sustainable upside path. Moreover, a potential direct access to the Kingdom's equity market by foreign investors could be a catalyst for a rally. The global financial crisis in 2008, triggered by the US mortgage meltdown, and the contagion impact of the worldwide recession was reflective in global equity markets, said the report for Al Khabeer. While US indices S&P 500 and Dow Jones contracted nearly 38 and 34 per cent of the value in 2008 respectively, other emerging markets such as UAE (Dubai Financial Index -72 percent), Saudi (TASI - 56 percent) and China (Hong Kong Shanghai Index - 48 percent) witnessed a higher contraction in shareholder value during the same period. Furthermore, indices with higher weightings of underlying assets like commodities such as Australia (35 percent) and Canada (Toronto Stock Exchange-33 per cent), plummeted in 2008 as markets discounted the global slowdown in demand for commodities. While the timeline to permit foreign participation has not been set, the ongoing advanced talks indicate it could happen anytime in the near future, said the Al Khabeer report. TASI is set to record sustainable recovery in 2012 since it is expected to continue its northward movement as investors currently weighs heavier on stock valuations due to the elimination of geopolitical concerns in the Kingdom and stable global cues, it added.
