Special Report: Jadwa Assessment of the Saudi Stock Market 2012

Published: March 29, 2012

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Editor’s Note:

The Saudi Stock Exchange, the Tadawul, was inaugurated in March 2007 through approval of the Council of Ministers and in accordance with the Capital Market Law, Article 20, establishing Tadawul as a joint stock company. However, stock companies have had a much longer history in the kingdom according to the Tadawul web site:

“Saudi joint stock companies had their beginnings in the mid 1930’s, when the “Arab Automobile” company was established as the first joint stock company. By 1975 there were about 14 public companies. The rapid economic expansion, besides the Saudisation of part of the foreign banks capital in the 1970’s led to the establishment of a number of large corporations and joint stock banks.

“The market remained informal, until the early 1980’s when the government embarked on forming a regulated market for trading together with the required systems. In 1984, a Ministerial Committee composed of the Ministry of Finance and National Economy, Ministry of Commerce and Saudi Arabian Monetary Agency (SAMA) was formed to regulate and develop the market. SAMA was the government body charged with regulating and monitoring market activities until the Capital Market Authority (CMA) was established in July 2003 under the Capital Market Law (CML) by Royal Decree No. (M/30). The CMA is the sole regulator and supervisor of the capital market, it issues the required rules and regulations to protect investors and ensure fairness and efficiency in the market.”

Last week the Jadwa Investment firm in Riyadh produced an extremely insightful report on the Tadawul All Share Index (TASI) for 2012 noting the year’s strong start for the index and assessing the prospects for further gains.

SUSRIS thanks Paul Gamble, Gasim Abdulkarim, and Brad Bourland, Jadwa’s Head of Research, Associated Director: Research, and Chief Economist respectively, for providing this insightful product for your review.

[Click here for the original report]


TASI 2012: 25 percent growth expected

The Saudi stock market has had a strong start to the year; the TASI has hit a three-and-a-half year high and volumes have surged. This reflects a clear and abrupt revival in investor confidence driven by a combination of local, regional and global factors. We expect further gains in the TASI during the year, but think that the recent rate of growth will not be maintained. Our forecast is that the TASI will end the year at 8,050.

TASI (click for original report with additional charts)

At the moment, bullish investor sentiment point to the TASI ending 2012 well above this level. However, we are cautious about prospects for the rest of the year. Valuations look reasonable and unlike many markets the TASI is still below its close the day before the collapse of Lehman Brothers, despite the Kingdom’s subsequent economic performance. However, we are wary about the pace of the gains so far this year and particularly the surge in volumes and very high proportion of trading focused on a few small sectors and stocks. If money moves into larger stocks and is more evenly distributed it would give greater confidence that the rally can be sustained.

Listed company earnings are forecast to grow by 14 percent in 2012. The industrial investment sector will record the fastest earnings growth owing to the first full year of production from Ma’aden’s massive phosphate facility. Rising stock markets and the strong local economy will also cause a notable rise in earnings for multi- investment companies. However, in both cases we think most of the gains are already captured in share prices.

The largest sectors of the market, petrochemicals and banks, offer the best value. Most of the gains so far this year have been led by smaller sectors, with speculative investors pushing valuations to well beyond those justified by the fundamentals. The rises in banks and petrochemicals have been much smaller and their valuations are much healthier. Banks provide the best exposure to the vigor of the economy and the petrochemical companies are among the strongest in the world. In addition, both sectors would benefit from the rotation of investor inflows into larger companies and both would be sought after by foreign investors should the market open further.

With the strong domestic economic fundamentals unlikely to be derailed, the major risks to our outlook are external. The biggest source of uncertainty is the tensions surrounding Iran, while the accompanying rise in oil prices is threatening a global economy that has still to regain health. Other risks stem from the problems in Eurozone and continued political support for ongoing austerity in the EU and US. Global markets could also be undermined by a deterioration of economic data and a lack of new liquidity injections from central banks. The high volume of speculation will not protect the TASI from external shocks. It will add to volatility and will probably worsen the impact of any shock.

Recent performance and valuation

The Saudi stock market has had a strong start to the year. By the end of March 21, it had climbed by 17.5 percent. Over this period it crossed 7,000 for the first time since September 2008 and rose for 14 consecutive days for the first time since at least 1998 (which is as far back as our data goes). Similar gains have been recorded and then not sustained the last few years. For example, in the first three months of 2010, the TASI rose by over 11 percent, but it ended the year 2.7 percent below the end-March level.

The simplest reason for the revival of the market has been the return of investor confidence. The stock market crash of 2006, when the TASI plunged from almost 21,000 to below 8,000, followed by the global financial crisis, which took the TASI down to just over 4,000, decimated the confidence of investors. Although the TASI rose in recent years, investor enthusiasm was low, with daily volumes around one-tenth of what they were at the peak of the market.

In contrast, the current rally has occurred amid high volumes suggesting that investors are returning to the market seriously. The total value of shares traded peaked at SR21.6 billion on March 19, the highest since March 2007, and has been above SR10 billion every day since February 19. This compares to a daily average of SR4.4 billion in 2011 and SR3 billion in 2010. Furthermore, an increasing number of dormant brokerage accounts are being reactivated.

Another indicator of the shift in investor sentiment was the jump in price in the first day of trading for the two companies that listed during February. The share price of plastic packaging company Takween jumped by 125 percent on listing, while that of Saudi Enaya Cooperative Insurance surged by 267 percent. During the market’s boom years exceptionally high first-day gains were common. While these have occurred occasionally with some subsequent insurance company listings, the companies were very small. Takween was the first new listing of over SR100 million to record triple-digit first-day growth since Basic Chemical Industries in the first half of 2008; Saudi Enaya also raised over SR100 million.

We think the following combination of local, regional and global factors have caused the revival in confidence that has lifted the TASI so far this year:

  • Valuations: Over the past couple of years company earnings and their share prices have been disconnected. Earnings have been strong, with net income rising by 36 percent in 2010 and by 21 percent in 2011, but the TASI was up by only 8 percent in 2010 and fell by 3 percent last year. As a result, the price-to- earnings ratio of the market was below 12 for much of the final quarter of last year, a level previously only seen at the depths of the financial crisis in late 2008 and early 2009.
  • Overheating land prices: With interest rates exceptionally low, shares and real estate or raw land are the main opportunities open to local investors. Given disappointment with the performance of the equity market and a serious shortfall of housing, there has been much investment in land in recent years. However, by late last year many investors felt that land prices were too high and set to fall, prompting a shift of funds from land into the stock market. Growing concerns about land prices and the rise of the TASI have added further momentum to the portfolio adjustment.
  • Margin lending: Local banks have resumed offering margin lending. This practice, under which investors can borrow against unrealized gains in stock market portfolios, was an important driver of the market through 2004 and 2005. Now, banks are requiring much greater collateral than before (and generally well over the regulatory requirement). The revival in margin lending may reflect the improved confidence of banks in the stock market as well as the large amount of spare funds banks have on their balance sheets.
  • Possible greater foreign access: Regulators have indicated that a further opening of the stock market to foreign investors may take place this year. Various administrative steps to support this process have occurred. Saudi Arabia is an important market and contains stocks that many foreign investors would want to own. Foreign participation has already increased. Foreigners bought SR2.6 billion of shares in February, compared to a monthly average of SR1.1 billion in 2011. Some investors may be anticipating an immediate inflow of large amounts of foreign money once the market is opened further, though this may not be the case (see box).
  • Strong economic outlook: Recent economic data has been strong. Non-oil economic growth for 2011 was at a 30-year high and data for January and February shows that the momentum has been maintained into 2012. New project announcements suggest that government spending is being stepped up at the same time as high oil prices and production are adding to government revenues.
  • Less turbulent regional political environment: Although conditions are far from normal in the region, it appears that conflicts in other countries in the region have been contained within their borders. Furthermore, the political transition in Egypt has been reasonably smooth and a new leader is in place in Yemen. Tensions with Iran have heightened, but these have not impacted the market.
  • Higher oil prices: Brent crude hit its highest level since July 2008 in March. None of the companies listed on the Saudi market give direct access to the oil sector, but there is a fairly strong correlation between the prices of petrochemical companies, the largest component of the TASI, and oil prices. Furthermore, higher oil prices support government spending and boost local corporate and investor confidence.
  • Rising global stock markets: Many of the leading stock markets in the world and in the region have gone up so far this year. By March 23, the US S&P 500 was up by 11.1 percent, Japan’s Nikkei was 18.4 percent high and the Dubai stock market had climbed 22.7 percent. This has been in response to better economic data, with that from the US particularly healthy and Japan also surprising on the upside. In addition, the risk of a serious escalation of the problems in the Eurozone has been pushed back. Key to this process was injections of cheap liquidity into banks by the European Central Bank (ECB). When the US Federal Reserve injected money into its banks, much found its way into stock and commodity markets; we think the same is happening with the new funds from the ECB.

The run-up in the TASI has lifted the P/E ratio, but at 13.9 it does not point to the market being expensive. The current P/E is comfortably below the average over the past five years, of 15.3. Compared with regional markets, the P/E is on the high side, though this is normal, as the TASI tends to trade at higher P/E than most owing to the local bias of the large domestic investor base.

The valuation is less attractive on a global basis. Fast-growing Asian markets usually trade on a much higher P/E than Kingdom and this premium has narrowed. Furthermore, the P/E is higher than many other emerging markets, and also indicates that the TASI has become more expensive versus major developed markets. The small role of foreign investors means the comparison with global markets is not an immediate concern, though it could cap upside potential.

Opening the market to foreign investors

Regulators are considering a further opening of the stock market to foreign investors. It appears that this will be through a qualified foreign institutional investor (QFII) system similar to that used in China. Under this, foreign institutional investors that meet certain requirements (in areas such as financial standing and internal structures, systems and controls) are entitled to invest directly up to a fixed amount in the stock market. Test trades under a new system have taken place and various administrative reforms to support its functioning have been implemented. No official announcement has been made on the timing of any opening, though there is expectation in the market that it will take place this year.

The anticipation of foreign inflows is one factor driving up the market. However, it is likely that these will initially be low, as was the case with the Chinese experience. China’s QFII program was launched in December 2002, but the first licenses, to just two institutions, were not issued until May 2003. Only 12 licenses were issued by the end of 2003. Currently there are 135 licensed QFIIs in China, who own less than 2 percent of total market capitalization. The liberalization appeared to have little impact local share prices, though it is not possible to isolate this from other factors. The Shanghai Composite index fell the month of the announcement jumped when the first licenses were awarded, but then fell for the next five months more than wiping out the earlier gains.

The Chinese model is designed so that regulators can have a degree of control over the flows of funds. Given the official concern in the Kingdom about flows of “hot money” it is likely that the approval of foreign institutions will be very careful. Early inflows are likely to go into large companies in sectors foreign investors know and understand, particularly petrochemicals and banks. The market opening could lead to the Kingdom being incorporated into in key indexes (such as those operated by MSCI, Russell and Standard and Poor’s). Most emerging market fund managers will use these indexes as a benchmark and some will track them directly. Again, the index providers are likely to take some time to assess the new rules and regulations and examine how the market operates.

Expected performance by sector

Banks: Banks have room to increase their earnings in 2012, though very low interest rates will contain this growth. The sound domestic economic environment means demand for new bank lending should rise further and with banks very liquid (excess deposits at SAMA were SR95 billion at the end of January) total lending growth will pick up. Banks are likely to target customers that they can charge higher rates, particularly small and medium-sized enterprises and through vehicle finance. More real estate financing is also likely regardless of whether the mortgage law is passed; three banks have partnered with the Real Estate Development Fund to launch mortgage programs backed by the Fund’s new insurance facility.

Tough competition will limit the scope for raising the level of fees and commissions for bank services, though a much higher volume of stock market trading should boost revenues from brokerage and margin lending. Lower provisions for non-performing loans were an important factor supporting profit growth in 2011 (provisions fell by 39 percent compared to 2010). We think that banks are now comfortable with their level of provisioning and with the economy strengthening, non-performing loans are unlikely to rise, meaning that provisioning will not distort profitability this year.

Petrochemicals: While petrochemicals earnings will be high, we think their growth will be subdued. Product prices are likely to average slightly lower than last year and a weaker global economy will impact on demand. We do not expect any change to the low fixed feedstock prices, which are important to the global competitiveness of the industry. The increase in local production capacity scheduled this year is limited to the ramp-up of output from Saudi Kayan and a Sahara Petrochemicals plant and small increments by SIIG and Chemanol. Output from PetroRabigh should rebound after operations were affected by maintenance issues in the second and third quarters of 2011.

Although Sabic, by far the largest company in the sector, does not have any major petrochemical facilities entering production this year, its revenues will benefit from activity at some of its subsidiaries. For example, phase two of the National Industrial Gasses Company is scheduled for commercial operation the first half of the year, steel producer Hadeed will open a large new plant in the second half and Ma’aden Phosphate Company will continue to ramp up commercial production. Sabic’s performance was very strong in the first and second quarters of last year; this is likely to mean relatively weaker year-on-year income growth in the same quarters of this year, followed by a pickup in the second half.

Telecoms: With mobile penetration rates approaching saturation point, at 188 percent at the end of 2011, data and broadband applications will be the main sources of revenue growth for the telecoms companies. This requires substantial capital expenditure in what remains a very competitive environment. To offset local competition, Saudi Telecom will strive to earn more revenues from its foreign operations (these were one-third of 2011 total revenues), though this will increase exposure to foreign exchange movements, which have hit profits in recent years. Mobily’s large long-term debt refinancing will lower debt servicing costs and potential lift profitability. Earnings for the sector will be affected by recently-listed Almutakamela, which is likely to incur high pre-operating expenses during the year. Zain is also likely to stay unprofitable, though its losses should continue to ease.

Key economic assumptions for 2012

Global economy: The global economy faces a tough year. The problems are concentrated in the Eurozone, which will be in recession for much of the year, though it appears to have contained the worst of its debt problems averted a banking crisis in 2012, at least. The US economy will perform better, but still faces serious structural issues and potential budgetary tightening. Emerging markets will remain the main source of global economic growth.

Oil prices: Given the subdued global economic outlook, oil demand growth should be weak. Supply from Libya is returning to the market rapidly, but with global spare production capacity low, the market remains vulnerable to supply disruptions elsewhere. In addition, uncertainty over the tensions with Iran is adding a risk premium to prices. The weak fundamentals point to lower oil prices, though the fall will not be that great, and we expect Brent to average $106 per barrel this year.

Saudi economy: The economic outlook for Saudi Arabia is healthy. Government spending will remain very large and, supported by greater bank lending and high consumer spending, will ensure strong growth for the non-oil sector. Overall economic growth will be slower than in 2011, as oil production is not expected to rise as fast as it did last year, though in barrels per day terms it will remain substantial, and with oil prices also high, there should be another large budget surplus.

Energy: This sector is dominated by Saudi Electricity Company (SEC), which sells electricity at fixed prices and gets most of its inputs on long-term contracts at stable costs. We do not expect any changes to prices or costs during 2012. Total output will increase this year. SEC is responsible for 2,995 megawatts of the 4,212 megawatts of new capacity that will come on stream in 2012. Some of this new capacity will replace older less efficient facilities, which should reflect favorably on profitability, but with input and output costs likely to be unchanged, profit growth will be small.

Cement: Earnings of the cement sector are not expected to benefit much from the high demand stemming from the massive construction activity underway. This is because we do not anticipate a change to the cement price ceiling. In addition, most plants are operating at, or close to, full capacity and little new capacity is scheduled to enter production this year. Some factories are facing difficulty in securing the necessary fuel and raw material supplies, though steps have been announced to reduce fuel shortages and some clinker stocks are being transferred between companies.

Cement companies’ investments in subsidiaries are mostly behind schedule, except for Eastern Cement’s precast factory, which may be commissioned late in 2012. With very strong sales and high profit margins from their core business, we suspect cement companies may delay planned investment in subsidiaries. The recent announcement by the Ministry of Commerce and Industry that the market would be opened for cement imports is not expected to affect local companies, as demand is sufficient to absorb local production and it would not be cost effective for foreign producers to charge lower prices than local ones.

Agriculture and food: High costs of production inputs such as fodder, fertilizer, pesticides and packaging materials will continue to put pressure on the margins of agricultural companies and food processors at a time when the government will be carefully monitoring the prices that consumers are charged. Nonetheless, several companies in the sector are expanding through new product lines, plant and outlets, which should boost revenues. Higher disposable incomes, particularly for those on lower incomes, should also lift sales by food processors.

Government measures to cut back the cultivation of wheat, fodder and certain fruits and vegetables will hit all companies, though the largest in the sector, Almarai, has been able to meet all its fodder needs through imports. Profits of Savola, the second largest company in the sector, were boosted by a one-time sale in 2011; although some of this income will be booked this year, the company has warned that year-on-year profit is likely to be small. Saudi Fisheries has reported that certain operations this year will be impacted severely by disease.

Industrial investment: Earnings of the industrial investment sector are forecast to soar this year because of the start of commercial production of diammonium phosphate (DAP; used for fertilizer) at Ma’aden, by far the largest company in the sector. Although a first shipment of DAP was made last year, commercial production only began in February and will take several years to rise to the planned level of three million tons per year (which would make Saudi Arabia the world’s second largest DAP exporter).

Most other companies in the sector are also export-oriented and some have manufacturing facilities in neighboring countries that are experiencing political instability, so will face a tough environment. As a relatively labor intensive sector, industrial investment will be more affected by the Nitaqaat scheme to raise the number of nationals working in the private sector. High raw material prices will also impact on the earnings of industrial investment companies.

Insurance: The insurance industry will continue to develop momentum in 2012; a record number of listed insurance companies were profitable in the final quarter of last year. Awareness of the need for insurance is increasing, more branches are opening, more products are being launched, relationships with insurance agents and brokers are developing and customer service is improving. Furthermore, local and global stock markets should boost investment income in 2012. However, the industry will stay very competitive, which will squeeze premiums and margins and further the high turnover of skilled executives that besets the industry.

Multi-investment: Multi-investment companies have benefitted from the rise in local and global stock markets this year and higher share prices should allow solid performance during 2012. Although the global economy will be weaker than in 2011, it will grow at a sufficient pace to bolster the revenues of Kingdom Holdings, the largest company in the sector, which has a diversified portfolio of international interests. The strong local economy and improving regional economy will benefit other companies in the sector, some of which are also expanding output at major portfolio companies.

Real estate: Real estate prices have risen rapidly recently and are expected to fall in 2012. This will affect the sales prices that developers can realize. Declines in land prices are also likely, though developers tend not to revalue their land holdings regularly and usually hold them on their books at well below the current market price. Many companies in this sector are focused on one or a few specific developments and progress in these projects will lift earnings in 2012; Emaar Economic City posted its first profit in 2011 and Jabal Omar leased 48 retail outlets in March. Some of the other companies in the sector that are focused on leasing or hotel management have new expansions that will enter service this year that should support earnings.

Retail: Growth in earnings for the retail sector should slow, after they were boosted in 2011 by the two-month salary bonus given to public- sector workers. Nonetheless, consumer spending has remained strong and with rising employment and government payments boosting disposable incomes, it will be a healthy environment for retailers. Most listed retailers are planning new outlets and in some cases new brands and significant upgrades to existing facilities. As most retail businesses are labor intensive, performance is likely to be impacted by government policies to increase the participation of nationals in the workforce.

Building and construction: Although year of huge government spending means the fundamentals for the building and construction industry are strong, many listed companies have not benefitted from this in recent years. Combined profits for all companies in the sector have fallen in each of the last three years, and we are cautious about projecting major gains in 2012. A number of the companies are export-oriented and will face a tough, though improving, regional economy. Those companies focused on supplying the oil industry will be constrained by the small amount of activity in this sector in 2012. Companies that produce building materials and supplies to real estate developers should have the greatest earnings growth potential. Much of the sector remains dependent on imported raw materials and should benefit from a modest decline in global commodity prices. The profitability of many building and construction companies will be impacted by their need to comply with employment quotas under the Nitaqaat program.

Transport: A strong economy should result in more goods and people moving around, providing a sound underpinning for the transport sector. The prospects for National Shipping Company, which dominates the sector, are encouraging; the fleet size is growing and various operational changes have been introduced to improve efficiency. Foreign trade flows will grow and oil exports will stay high. Other companies in the sector are investing in fleet and one is embarking on an acquisition, though all will continue to face tough competition.

Media: The media sector has had a tough few years and this is likely to continue into 2012 as competition from other sources of news intensifies. Companies in the sector are increasing their focus on electronic media and other growth areas, such as education. The smallest of the three companies in the sector is restructuring to boost financial performance.

Hotels: A substantial increase in new hotels opening in the Kingdom this year will put some pressure on the earnings of the two companies in the small hotels sector. Nonetheless, the number of foreign visitors should increase and higher disposable incomes should mean more domestic tourists. Execution of new contracts should boost the performance of the dominant player, as will revenues from lease of a new compound.

Investment strategy

We think that the largest sectors of the market, petrochemicals and banks, offer the best value. Most of the gains so far this year have been led by smaller sectors, with speculative investors who are less concerned about valuations pushing them to levels well beyond those justified by the fundamentals; transport, real estate, multi-investment and insurance are all up by over 30 percent. The rises in banks and petrochemicals have been much smaller and their valuations are much healthier. Both sectors would benefit from the rotation of investor inflows into larger companies that is needed for the market rally to become more sustainable and both would be sought after by foreign investors should the market open further.

Banks provide the best exposure to the health of the economy. Petrochemical companies are globally competitive and having missed much of the run-up in share prices, look attractively valued; for example, Sabic is trading on a P/E ratio of below 11 compared to over 17 for Dow Chemical in the US. Some investors are concerned about potential oversupply of petrochemicals, as global production capacity is built up, but as the lowest cost producers we do not think that the sales of Saudi companies will be too greatly affected, though prices may fall.
Some building and construction and industrial investment companies that will benefit directly from high government spending offer good investment opportunities. So do select retail stocks and food processors that will gain from ongoing high levels of consumer spending. Although we expect industrial investment to record the strongest earnings growth, largely due to a surge in earnings from Ma’aden, we think most of these gains are already captured in share prices. Telecoms is currently the cheapest sector and there is potential for appreciation of the two leading telecoms companies despite the highly competitive environment.


Based on our sectoral earnings forecasts and expectations for the trailing price-to-earnings ratio at the end of the year, we expect that the TASI will end the year at 8,050. This is 7 percent above the current level. Our number is a fair value estimate for the TASI and share prices can trade some way from fair value for some time. At the moment, bullish investor sentiment point to the index ending the year well above this level. However, we are cautious about prospects for the rest of the year and do not think that the pace of recent growth can be maintained.

At their current level, valuations of the market look reasonable. The P/E ratio is still below the five-year average and not out of line with regional markets. While the market is on the expensive side compared to global markets, local investors have a strong home bias and are not likely to be deterred unless a significant valuation disparity emerges, while foreign investors only account for a small proportion of the market. The level of the TASI is also comforting. The TASI is still slightly below its close the day before the collapse of Lehman Brothers (it ended September 14, 2008 at 7,759). In contrast, most stock markets around the world are well above their pre-Lehman closes, even though in many cases their economic performance has been less impressive than the Kingdom’s in the subsequent period.

However, what is concerning is the pace of the gains so far this year, the surge in volumes and the amount of speculation. By March 21, the TASI had rise in 22 of the previous 25 trading days, climbing by nearly 11 percent despite the absence of any obvious positive triggers. A huge amount of money has flowed back into the market; the daily value of shares traded so far in March has averaged SR15.5 billion, compared to a daily average of SR4.4 billion for the whole of 2011. Recent trading patterns show that much of this money is being used for speculation.

In February, the insurance sector accounted for 32 percent of all transactions, despite making up just 2.4 percent of market capitalization. Recently there has been a rotation into shares with prices of between SR10 and SR15. For example, on March 18, Zain, Dar al-Arkan and Alinma Bank accounted for 45 percent of all shares traded despite constituting just 3.1 percent of total market capitalization; the value of Zain shares traded was greater than that of all shares traded in all other Middle East and North African markets that day. If money moves into larger stocks and is more evenly distributed it would give greater confidence that the rally can be sustained. High levels of speculation will deter foreign investors.

The economic environment in the Kingdom is strong and we do not foresee any event that is likely to derail the high government spending that is fueling the economy. The risks to our outlook for the TASI are therefore external and on the down side. The biggest source of uncertainty is the tensions with Iran. These seem contained for the moment, but there are serious risks of an escalation that could have a direct and substantial impact on the Kingdom, which appear to have been largely ignored by local investors. Political conditions in several other parts of the region remain far from normal and have the potential to deliver abrupt shocks to investor sentiment.

The Iranian situation is feeding into higher oil prices, which are threatening a global economy that has still to regain health. High and rising oil prices were one factor that set back the global economy after a strong start to 2011 and although the rate of increase in oil prices has been far less this year, they have exceeded last year’s peak. Other risks stem from the problems in Eurozone, which are a long way from being resolved, a fall in political support for austerity in the EU and US and the potential for sharp slowdown in China.

A worsening of economic data would undermine the momentum global stock markets have built up over the past six months. Global markets are also less likely to benefit from central bank support, as it now appears unlikely that the US Federal Reserve or the European Central Bank will undertake major new liquidity injections over the remainder of the year. The upside risks to our forecast are local; either that the rally becomes less speculative and generates serious broad-based momentum, or that foreign inflows (in the event of the market being opened) are much greater than we anticipate.


For comments and queries please contact the author:
Paul Gamble
Head of Research
Gasim Abdulkarim
Associates Director: Research
Brad Bourland, CFA
Chief Economist

Head office:
Phone +966 1 279-1111
Fax +966 1 279-1571
P.O. Box 60677, Riyadh 11555 Kingdom of Saudi Arabia


About Jadwa Investment – Jadwa Investment is a Saudi Closed Joint Stock company operating under the supervision of the Saudi Arabian Capital Markets Authority (CMA). Under the CMA decision published on August 21, 2006, Jadwa was awarded a license to offer all types of investment services including dealing, managing, custody, arranging and advising. All investment services offered by Jadwa Investment are supervised by a Shariah Supervisory Board and are fully Shariah-compliant.


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