Published: Oct 29, 2011 01:49 Updated: Oct 29, 2011 01:49
JEDDAH: The Saudi stock market is likely to make major gains when the bourse resumes trading after Eid holidays on Nov. 12, analysts said Friday.
The market, which showed some positive signs last week, will be closed for the Haj holidays with the authorities announcing Nov. 5 as the day set for standing on Mount Arafat, and Nov. 6 as the date to mark Eid Al-Adha feast.
The Tadawul All-Share Index (TASI) gained 0.67 percent on weekly basis, closing at 6,147.54 points, led by the petrochemical sector. Analysts said Middle East stock markets also stand to gain in the short-term from the European debt deal.
“The performance of the Saudi stock market depends on local and regional factors as well as the euro zone debt crisis. Due to Saudi stock market’s link to global markets, the positive outlook for the market depends on how euro zone recovers quickly from its debt crisis, which has impacted globally,” Faisal Alsayrafi, a financial adviser, said.
Paul Gamble, head of research at Jadwa Investment, said: “Saturday should be a good day for TASI as it will follow other markets in responding positively to the results of the euro area summit. However, there are still many details that need to be finalized. This process will go on through Eid Al-Adha, including an important G20 meeting.”
He added: “Although third quarter results were good and the economy remains healthy, the market is being driven by global issues rather than local ones. Global sentiment will remain the key determinant of performance after the holiday.”
The mood in the markets the world over has clearly taken a sharp turn for the better, partly because of the results of the latest summit in Europe and partly due to somewhat more encouraging data from the US, Jarmo T. Kotilaine, chief economist at the National Commercial Bank,
said.
“The European Union summit offered significant progress in three key areas. Firstly, there was an overdue agreement on a haircut for private holders of Greek sovereign debt. This should reduce the debt burden facing Greece, although its ultimate benefits may prove fairly limited, not to say mixed, as it will also engender economic losses. Secondly, the need to recapitalize European banks was recognized and a deal agreed on, which should boost confidence in their ability to weather the sovereign debt storm. Thirdly, there was an important agreement to boost the resources of the Financial Stability Facility which is essential so as to credibly assuage contagion fears,” Kotilaine said.
Even though the near-term impact of these developments is positive, he said there are a number of question marks pertaining to the EU deal and its ultimate effectiveness. The Greek debt exchange is voluntary and will naturally involve sharp losses and new capital requirements for banks agreeing to it. Even if the deal is successfully executed, Greece’s debt to GDP ratio will be 120 percent, dangerously close to unsustainability. Moreover, the implementation of these plans will take some time and involve uncertainties. It is likely that the success of the deal will be questioned at some point and the basic market outlook therefore probably remains one of continued volatility, Kotilaine added.
However, NCB said in its latest report that during the third quarter of this year, Saudi Arabia witnessed only two initial public offerings (IPOs). The lack of primary market appetite can be attributed to the global turmoil and deteriorating investor sentiment. The risk-averse attitude of local investors triggered by global uncertainty pushed investors to seek safer assets.
Saudi Arabia was the only market in the GCC (Gulf Cooperation Council) region to witness activity in the primary market during the third quarter. The local market is expecting a further five IPOs before the end of the year. If these announcements materialize, it will prove the resilience of the Saudi equity market to global turmoil and help support the main stock market index into the positive territory for this year, the NCB report said.