Saudi market could pick up on EM inclusion, Q3 earnings: report

Saudi market optimism could pick up closer to the Tadawul All Share Index’s (TASI) inclusion in emerging market indices, Al Rajhi Capital said in a report, noting that Q3 earnings could also provide a boost.

After a strong run up in the first half of 2018, fueled by the oil price rally and optimism around TASI’s inclusion in MSCI, FTSE and S&P EM indices, the Saudi market has “pulled back a bit,” the report said.

Though year-to-date the net foreign buying (QFI+Swap) remains at SAR 11.8 billion, August foreigners turned net sellers last month to the tune of SAR 0.6 billion.

“This along with the sharp decline in emerging markets possibly explains the contagion effect leading to the correction in the Saudi market,” Al Rajhi Capital said.

That said, the Saudi index has risen 5.3 percent YTD, compared to a decline of 12.3 percent YTD for the MSCI EM index.

“Investors exuded interest in dividend paying stocks as seen from minimal relative correction in these stocks,” the report said.

The Saudi market has closely tracked the price of the WTI crude benchmark, Al Rajhi Capital added, noting that the oil market looks positive in its view.

The global oil supply-demand equation is likely to tighten as sanctions go into effect on Iranian crude, starting Nov. 4.

“One could expect more than 50% lower exports implying that OPEC will play an instrumental role in managing prices,” analysts at Al Rajhi Capital said.

Oil demand also remains healthy with US commercial inventories below the five-year average and OECD inventories as a proportion of global demand at levels not seen in the past 5 years.