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It is boom time on Saudi stock market

Large and liquid aptly describes Saudi Arabia's greatest natural resource its oil reserves. But it applies equally to the kingdom's booming stock market.

  • The Economist
  • Published: 00:00 August 20, 2005
  • Gulf News

Large and liquid aptly describes Saudi Arabia's greatest natural resource its oil reserves. But it applies equally to the kingdom's booming stock market.

The Tadawul All-Share Index has risen by more than 70 per cent this year.

With a market capitalisation that exceeds $500 billion and an average daily turnover of more than $2 billion, it is now the biggest emerging stock market in the world, according to analysts at HSBC. (Their definition excludes Hong Kong, which is worth more.)

Rising oil prices are fuelling this growth, helped by low interest rates and, after September 11, 2001, a growing desire among Arab investors to keep their money in the region. And there is more for them to invest in, as economies diversify and state-owned assets are at least partially privatised.

The Saudi market has already seen four initial public offerings this year and more are on the way, helped by new capital-market laws designed to bring more rigour to the system.

Future flotations are expected to include Saudi Research and Marketing Group, a publisher whose titles include Asharq Al Awsat, a leading Arab newspaper, and almost a dozen insurance companies.

Valuations are high. John Lomax, a strategist at HSBC, reckons that the Saudi market will trade on a 2005 price/earnings multiple of almost 35, more than double that of leading emerging markets outside the region.

But there is strong underlying growth in the operations of many listed companies, says Walid Shihabi, head of research at Shuaa Capital, an investment bank in Dubai.

For example, Sabic, a petrochemicals company whose partial free float (70 per cent of the shares are owned by the Saudi government) accounts for almost 30 per cent of the stockmarket's value, is doing well on the back of a relatively low cost base and rising global demand for its products.

A correction is likely eventually, but for now, with oil prices high, the good times continue. It is hard for outsiders to join the party, however.

Less than 5 per cent of Saudi shares are owned by other Gulf investors, who are prohibited from investing in banking and insurance stocks; foreigners from further afield cannot invest directly in the market, though they can get a look-in by putting their money into, say, Saudi mutual funds.

But at these valuations, would they want to? The problem with the Saudi market, according to Edmund O'Sullivan, editorial director of the Middle East Economic Digest, is too few investment opportunities for all this money.

Many of the country's best companies are still private, family-owned concerns. For public investors, that is one deep well that cannot be tapped.

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