MSCI, FTSE inclusions driving Tadawul’s recent bull run: analysts

The Saudi Stock Exchange’s (Tadawul) solid gains over the past four trading sessions is the continuation of its inclusion in the MSCI and FTSE emerging markets indexes, according to analysts.

In the last four trading sessions, benchmark Tadawul All Share Index (TASI) gained nearly 600 points, with analysts expecting more inflows with the third tranche of FTSE this month.

“The current run of the Tadawul is very much a continuation of the index inclusion theme, as still a decent chunk of passive money is yet to flow in from both FTSE and MSCI trackers,” Vrajesh Bhandari, senior portfolio manager at Al Mal Capital told Argaam.

Issam Kassabieh, senior financial analyst at Menacorp Financial Services added that the entry of foreign investors (passive and active) and exchange-traded funds have pushed the [Saudi] index and the trading volumes.

“We look ahead for the second phase of inclusion (MSCI) as well that could be what it takes to break the 10,000 point mark,” he said.

However, Kassabieh believes regional equities could react negatively after Dow snapped a six-day winning streak on Tuesday following the growing trade tensions between the US-China.

Another analyst with a leading brokerage firm, on conditions of anonymity, believed the Tadawul is unlikely to cross the 10,000-point barrier, unless oil recovers or corporate earnings pick up significantly.

On the valuation front, Bhandari found the valuations of Saudi large caps to be stretched and upside is limited in the short-term.

“In the long run though, there are positive implications not just for the Saudi market but for the region as a whole,” he said, adding that foreigners and more institutional participation will bring more discipline to the market.

Focus should soon shift to fundamental bottom-up stories in the midcap space, as these companies are benefiting from the “consolidation wave” as a result of Saudization or are in sectors that continue to fare well, Bhandari stated.

Kassabieh, however, expects financial and petrochem sectors to be the most sought after, in addition to defensive stocks.