JEDDAH – The Saudi stock market, Tadawul, recorded a marginal gain of 1.0 percent during October as geopolitical tensions, US congressional gridlock, and anticipation of corporate earnings held investors captive in uncertainty earlier last month, the National Commercial Bank (NCB) said in its latest “Saudi Economic Review”. However, in general, the market outperformed expectations and recorded strong earnings which drove prices higher. The leading petrochemical stock, SABIC, announced a SR6.5 billion profit during 3Q, a 2.5 percent gain over the same quarter last year. Similarly, other “blue chip” stocks have also recorded strong profits last quarter such as Saudi Telecom and Riyad bank posting a gain of 73.3 percent and 18.8 percent Y/Y, respectively. The market created a good momentum going into November and reached above the 8'300 level, the highest level since 2008. By the end of last month, the best performing sectors this year are hotels followed by retail and real estate posting 102.9 percent, 48.5 percent, and 47.2 percent, respectively. The agriculture sector gained 32.4 percent as business activity picked up over the past few months, determined by their increased funding. The anticipation of quarterly announcements to revamp portfolios triggered a drop in activity levels. During October, daily trading volumes averaged at SR4.6 billion in comparison to SR5.7 billion during September, a plunge of 19 percent M/M. The market is still predominantly driven by Saudi individual investors which results in a fluctuating market. However, Saudi institutions increased their exposure to riskier stocks as their trading share increased to 10.5 percent last month, up from 8.7 percent during September. By nationality, Saudi trading represented 94.1 percent of the total market, reflecting the limited ability of foreigners to trade in Tadawul, currently only available as SWAPs through local brokers. The strong rise this month is likely to moderate as investors seek to skim capital gains for profit. Nonetheless, the upward trajectory is led by fundamentally strong stocks which will encourage a strong foothold for the index. The primary market concluded the month of October with no activity. Tadawul has announced two initial public offerings (IPO) for November and December. Bawan will be issuing 15 million shares, representing 30 percent of the company's capital, to the public. The second announced IPO is for the agricultural company Astra Food which will offer 11 million shares. Both companies have not disclosed their prices for the shares offered. As for the sukuk market, Riyad bank concluded the issuance of SR4 billion floating rate corporate SUKUK. The profit rate will be set at 3M SAIBOR plus 68bps over a tenor of seven years. Sukuk issuances have been a rising alternative in attracting funds, we expect the market to embrace this type of financing further next year. Additionally, the Shoura Council strongly advised Tadawul to turn public and limit IPO investor guarantors from trading within the first three months to limit speculative trading for individuals and create stability for entry stocks. The Capital Market Authority vowed for higher transparency and efficiency to ensure the progressive development of the local market. – SG
