RIYADH – Tadawul All Share Index (TASI) volumes and the index level come under pressure immediately before, during, and the most of Ramadan month, NCB Capital said in its recent analysis. The leading Saudi wealth manager finds that from the third week of Ramadan onwards, both volumes and the index level pick up. In its newly issued report, NCB Capital believes the retail, food, telecom and real estate sectors are the main beneficiaries of Ramadan and Haj due to increased consumption by locals and visitors. On the other hand, banking, cement and construction sectors might see a decrease in activity given the reduced working hours and general decrease in business activity during the religious holidays. Commenting on the report, Farouk Miah, Head of Equity Research at NCB Capital, said: "We find that the volume of shares traded begins to decrease during the 6-8 weeks before the start of Ramadan, and remains low during most of the month. On average over the past five years, the volume of shares traded during the month of Ramadan is 51 percent lower than the average for the year. We believe this reflects reduced appetite to trade by retail investors given their focus on religious activities." NCB Capital data suggests that during the period 8 weeks and 2 weeks prior to the start of Ramadan, there is net buying in the market, resulting in the Index level moving up. However, between the period 2 weeks before Ramadan and the 3rd week of Ramadan, since 2000 (excluding 2005 and 2008) the index on average fell by 2.3 percent. This could be attributed to retail investors liquidating some of their portfolios to pay for the extra costs they incur in Ramadan. There is a noticeable increase in traded volumes and the index level from the last week of Ramadan onwards. NCB Capital believes this could be due to many investors hoping to benefit from the market recovery once the market re-opens after Ramadan. On average, the TASI index gained 5.9 percent between the 3rd week of Ramadan and 8th week post the end of Ramadan. Volumes increased by 126 percent on average in the two months after Ramadan versus the average during Ramadan. From analysis of quarterly results of stocks under coverage, NCB Capital believes retail and food stocks are positively impacted the most by Ramadan. "For example, from management feedback we believe sales of key dairy products at Almarai double during the month of Ramadan. Additionally, other retailers such as Al Hokair and Jarir will benefit due to people buying gifts. Telecom and RE stocks also benefit from profit gains due to increased telecom usage by locals and visitors, as well as full capacity at most hotels in the religious cities of Makkah and Madinah (which directly benefits stocks such as Taiba)," Miah noted. NCB Capital believes the level of activity recorded by the banking, cement, construction and industrial companies will fall during Ramadan. For banks, this is mainly due to the limited operating hours, less demand for loans and lower TASI activity. For the cement, construction and industrial sectors, this is due to the reduced construction activity during Ramadan given that employees will be fasting and thus working on a construction site will be difficult. For the cement sector, NCB Capital finds sales volumes in the last three years during the month of Ramadan are 36 percent below the average of the previous month. According to the Saudi Central Department of Statistics, 2.9 million people performed Haj in 2011, up around 5 percent YoY. Around 1.1 million were from Saudi Arabia and 1.8 million from abroad. And according to various reports, the Saudi economy benefits by up to $30 billion from the Haj period each year. Key sectors for which Haj is important include telecoms, retail, food, real estate and banks - largely due to their consumer nature and the high influx of people and money into the country for the pilgrimage. – SG
