Markets welcome Saudi Arabia’s planned reforms

Investors responded favourably on Monday to the kingdom’s package of economic reforms, unveiled in a Bloomberg interview with the deputy crown prince, Mohammed bin Salman.

The country’s Tadawul All Share Index had its best day in more than two weeks on Monday, ending up 1.38 per cent. Above, the Kingdom Tower stands illuminated at night in Riyadh. Waseem Obaidi / BloombShow more

Saudi real estate and retail stocks are tipped to be among the main longer-term beneficiaries of the kingdom’s audacious economic reformation plan, according to market observers, with international investors eager to participate in the IPO of oil giant Saudi Aramco.

Investors responded favourably on Monday to the kingdom’s package of economic reforms, unveiled in a Bloomberg interview with Prince Mohammed bin Salman, the deputy crown prince.

The country’s Tadawul All Share Index had its best day in more than two weeks on Monday, ending up 1.38 per cent. But observers have cautioned that volatility on the region’s largest stock market is unlikely to ease any time soon, with oil continuing to be the dominant factor.

“The restructuring of the economy and removal of subsidies could bring some short [term]pain that will have a negative impact to start with, but will benefit the economy in the longer term in a number of ways,” said Tariq Qaqish, the managing director of asset management at Al Mal Capital in Dubai.

“Moves to diversify the economy may see investment flows into a number of asset classes, like real estate. At the same time the rest of the region might also have a piece, especially the UAE, which already has the benefit of a stable real estate asset class.”

Saudi construction stocks slightly outperformed the main Saudi market on Monday, rising by 1.8 per cent, led by Zamil Industrial Development and Arabian Pipes.

Construction stocks were likewise the main gainers in Dubai, with the Dubai Financial Market General Index rising 2.2 per cent to 3,378.54. Shares in Arabtec enjoyed their best day in more than four weeks, closing up 8.7 per cent at Dh1.75. Drake & Scull International, meanwhile, closed up 6.6 per cent at 52.8 fils, a new high for the year, on the stock’s busiest day of trading in more than two years.

Foreign investors, able to purchase Saudi stocks directly since June, are awaiting the public listing of Saudi Aramco.

The deputy crown prince told Bloomberg that the country plans to sell a stake of less than 5 per cent in Aramco, either next year or in 2018.

“When you have companies like Aramco listing you bring in new foreign investors,” Mr Qaqish said. “It’s a massive company and of course there will be a lot of appetite.”

Saudi Arabia’s retail sector is also considered to be one of the possible main beneficiaries from the kingdom’s economic reforms, after the Saudi Arabian General Investment Authority announced in September that foreign investors would be able to own 100 per cent of retail and wholesale businesses.

“It’s a little early to speculate, but retail would be one of the really interesting sectors if they really open it up to outside investors,” said Nour Eldeen Al Hammoury, chief market strategist at ADS Securities in Abu Dhabi.

“Right now it’s too early to judge what the impact will be, we need to wait to see how fast the reforms are implemented.”

Mr Al Hammoury said that while the market had been cheered by the announcement of the reforms, the prospect of mid-April’s meeting in Doha of oil producers is likely to be the primary influence on stocks in the coming weeks.

Continued speculation over oil prices, together with the comparatively low participation of institutional investors, mean that recent volatility on the Saudi bourse is unlikely to disappear, Mr Qaqish said.

“The Saudi market is driven by retail investors, so you need to diversify the market participants and bring in the big institutional investors to really deal with the volatility,” he said. “This could happen when Saudi Arabia is included in MSCI’s Emerging Markets Index, and the listing of giant companies like Aramco. But the market needs to develop and this will take a lot of time.”

The former Tadawul chief executive Adel Al Ghamdi said in February it was uncertain whether it would be feasible for Saudi Arabia to join the MSCI index in 2017, as originally envisaged.

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