Saudi insurance stocks are defying the market's downward trend as investors seek safe haven.
Insurance shares in the oil-exporting nation advanced 1.8 per cent yesterday while the overall Tadawul All-Share Index fell 0.25 per cent to 5916.31.
AXA Insurance rose 7 per cent. The stock is among the top traded on the Saudi bourse alongside heavyweight petrochemical firms Saudi Basic Industries Corporation and Yanbu National Petrochemical Company, also known as Yansab. Gulf Union Cooperative Insurance jumped 7.1 per cent. Wala'a Insurance rose 9.9 per cent. Solidarity Saudi Takaful added 1.3 per cent.
"Its purely unique to Saudi Arabia. Retail investors usually shift between insurance stocks and more aggressive plays in the petrochemical sector," said Haissam Arabi, the chief executive at Gulfmena Investments in Dubai. "When there are global macroeconomic concerns, they sell from one and turn to insurance companies, which appear to be negatively correlated to global equities."
Retail investors make up 80 per cent of the traded volume on the Saudi Tadawul, the largest stock market in the region, trading an average of 3 billion riyals daily. The sector is a recent inclusion as insurance companies were deregulated three years ago, Mr Arabi said.
"The idea is that the insurance sector is hot with upcoming mortgage law permitting mortgage financing [and] car financing so investors started trading it and have been attracted to that sector ever since," he said.
Insurance premiums in the GCC are to grow at a compounded annual growth rate of 20 per cent in the next four years to reach US$37bn, according to a report by Alpen Capital.
"UAE and Saudi Arabia are the two biggest markets in the region with 75 per cent combined share while Qatar is expected to register the fastest growth at a compounded annual growth rate of 30 per cent from 2011 to 2015," the report said. "GCC countries are experiencing rebounding economic activity as it seeks to diversify away from hydrocarbon dependence and have invested across varied sectors."
With substantial projects under way in multiple sectors, the demand for financial services, especially insurance, is expected to rise steadily in coming years.
