Market impacted by tight monetary policy, TASI seen to move sideways: Derayah Financial CEO

Mohammed AlShammasi, CEO of Derayah Financial

The Federal Reserve is expected to raise interest rate this month and next May, to complete its tight monetary policy, Mohammed AlShammasi, CEO of Derayah Financial, told Argaam on the sidelines of the Financial Sector Conference (FSC) today.

He attributed his forecasts to high inflation rates in the western economies and recent banking turmoil.

High interest rates negatively affect the attractiveness of stocks, as strong returns on low-risk assets lead the stock market to lose its attractiveness. Thus, the market witnessed a lackluster trading volume and sectors declined sharply. In addition, stocks scored very low ratings compared with their historical ratings over the past years.   

AlShammasi added that some sectors such as banking reached attractive levels, with strong P/E and discount rates.

He added that it is good to build long-term positions as the P/E ratios fell, noting that the 10,000 level is somewhat attractive.

Further, the CEO confirmed that the market is affected by the tight monetary policy, due to lack of significant rebound in stock markets, adding that the index will continue to move sideways, as it is still affected by significant pressures.

The company's strategy in the stock market focuses largely on selecting stocks more than the index performance, AlShammasi said.

He indicated that the index depends on various sectors, and the real challenge this year is to select good stocks and seize opportunities to benefit from the variables in the market.

The region's banks have limited exposure to the three troubled banks, Silvergate, Silicon Valley and Signature, the CEO said.

He added that the Saudi financial sector focused over the past years on financing local assets, projects, housing loans, major companies and small and medium-sized enterprises, which witnessed significant growth recently.

The global exposure to the banks through a share of foreign funds is very limited, AlShammasi said.

He concluded that, according to preliminary readings, there is no clear impact from the banking crisis on the US.