By Courtney Trenwith
The Middle East’s largest index has risen 12% since authorities announced foreign investment would be liberated
Saudi Arabia’s Tadawul All Share Index surpassed 11,000 points for the first time in six years on Wednesday, five weeks after authorities announced the exchange would be opened up for foreign direct investment.
The Tadawul has surged 12 percent since the announcement in July, which analysts expect will bring fresh liquidity into the largest market in the Middle East.
It has increased nearly 30 percent since the start of the year.
However, some have suggested the upward trend would not continue unabated.
“I expect there will be volatility in the Saudi stock market in the remaining part of the year," National Commercial Bank chief economist Said Al Shaikh told Arab News.
“I don't think the index will continue to rise indefinitely. But I think there will be some correction and profit-taking throughout this period until the end of the year.”
Riyadh-based investment strategist John Sfakianakis said the next earnings cycle would help determine the future direction of the market.
“The upswing has been happening on the back of corporate news and as oil has been treading lower,” he said.
“The view of local investors seems to be geared by momentum that seems to be gaining pace as news of the opening up of the market is still the main reason for the bullish trend.”
Jadwa Investment senior economist Asad Khan said he expected the Tadawul to continue trending upward on the basis of buoyed investor confidence.
“In addition, recent positive economic data from the US has added to optimism surrounding the global economy, with the petrochemical stocks, in particular, benefiting,” he told Arab News.
“We are likely to see a period of oil price stability, with the Brent benchmark not deviating too drastically from around $100. At this level, oil prices are not likely to inhibit the upward momentum seen in the Tadawul during the last month.”
He said the exchange was likely to also surpass the 12,000-mark within six months.
“Looking at the general positive investor sentiment combined with the favourable domestic macro-economic climate, and improving global economic environment, it’s not beyond the realms of possibility that the TASI exceeds the 12,000 mark within the next three to six months, all other things being equal,” he said.
Saudi authorities have not yet said exactly when the foreign investment would be liberated but it is not expected to be until at least next year.
Currently foreigners can invest in the Tadawul via bonds. The Capital Market Authority has not yet confirmed how far it will open up the market but it is believed that only a few large asset managers will initially be allowed to take part, and probably with a cap on foreign ownership.