Saudi spending, new levies to drive investor sentiment: Al Rajhi Cap

Saudi Arabia’s plans on fiscal spending and the implementation of recently imposed value-added tax, along with other levies such as electricity and fuel price hikes, will be the key themes to watch in 2018, Al Rajhi Capital said in a recent report.

Investors will also be monitoring developments regarding the inclusion of the Tadawul All Share Index (TASI) on MSCI Emerging Markets Index and FTSE Emerging Markets/FTSE Emerging Markets All Cap indices.

“Oil prices shifting to a higher range and start of new non-oil revenue streams (VAT, expat levy, etc) will enable government to continue increasing fiscal spending over the medium term,” the brokerage said.

This is positive for cyclical sectors such as cement —which was the best performing sector last month — as well as real estate, capital goods, construction, building materials and banks, the report said.

“In our view, the investors are likely to remain on the side lines until the consumption and spending patterns emerge in the next few months,” Al Rajhi Capital said.

“We would also keep an eye on gaining insights from new developments that will take effect in 2018, i.e. lifting of women’s driving ban and licensing movie theatres, and how these developments play into the overall consumption dynamics in the Kingdom,” it added.

The brokerage suggested that investors should also keep an eye on “bottom-up stories” in 2018, noting that some companies in the consumer sectors have built strong franchises and are likely to emerge stronger after adapting to the current reforms.