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Tue 24 Feb 2009 02:55 PM

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Sharp H2 recovery predicted for Saudi shares

SHUAA Capital sees Saudi's recovery on back of indications of global recovery.

The Saudi stock market will stage a sharp recovery in the second half of this year, SHUAA Capital said on Tuesday.

“We expect the recovery in the Saudi equity market not to be gradual but sharp, and forecast a 30 percent upside in the Tadawul All Share Index (TASI) benchmark in 2009,” said Mahdi Mattar, SHUAA’s head of research and chief economist.

“While it is difficult to predict the timing of these forecasts, we expect the recovery to take place during the second half of the year and to be in the form of a rally after a period of range-bound volatile trading,” he said.

The Saudi market had priced in a gloomy outlook along with limited improvement in petrochemical exports - signs of global economic relief, leading to increased oil demand, was likely to be the main driver this year, SHUAA said.

“Any indication of a possible recovery is expected to increase demand for oil and petrochemicals and put upward pressure on commodity prices. This will clearly have a positive effect on investor sentiment and should set the stage for a recovery,” Mattar added.

Real GDP growth of 0.33 percent woud be seen in Saudi this year, predicted the UAE’s largest investment bank.

But it added that the Kingdom’s economic challenges were cyclical rather than structural.

The Saudi economy would be hit hard by lower production in its hydrocarbon sector this year, while the non-hydrocarbon sector could grow by 3.9 percent, slightly slower than last year’s growth of 4.4 percent, the investment bank added.

The IPO market was also likely to be subdued this year, but would remain the largest one in the Middle East, SHUAA pointed out.

“Some companies in sectors that are currently deemed less desirable such as real estate and the downstream oil industry, which might need to raise capital, would probably revert to private placements. We anticipate a significant increase in number of such deals throughout the year,” Mattar said.

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