Dubai: Shares of Saudi Aramco surged for a second day after a historic market debut, helping the kingdom briefly meet its long-sought $2 trillion valuation goal before closing on a not-so-high note.
The oil colossus had a record-setting market debut on Wednesday, rising to 35.2 Saudi riyals from the price set at 32, recording a surge of 10 per cent, which is the permitted limit for a stock move on the local Tadawul stock exchange.
Shares spiked further on Thursday, opening at 38.7 riyals, which gave Aramco a valuation of $2 trillion, a figure long-mooted by Saudi Crown Prince Mohammad bin Salman. However, shares pared gains and touched a low of 36 riyals soon after, ending the session up 4.5 per cent at 36.8 riyals.
“The price rise should came as no surprise given strong regional interest,” said Timothy Fox, chief economist at Emirates NBD. “Having said that, one needs to look beyond the fascination with short-term price gains.”
It is logical to see profit-taking after having reached the targeted market capitalisation, as the return is adequate for a short span of time, and as we are close to the year end, said Mohamed Zidan, chief market strategist for ThinkMarkets in Dubai.
“After the positive momentum, now the markets will be back to fundamentals which create revenue and margin risks for Aramco: correlation to oil prices, the conditions of global economy, and recent developments in the trade talks between US and China,” Zidan added.
Shares will continue to trade higher the coming week, analysts said, while staying cautious against how high the move would be. “I do not expect high selling pressure to come (next week). However, there will be a slowdown in the upside move,” Zidan said.
Arqaam Capital recommended a ‘buy’ with a price target of 39.2 riyals, but analysts at Bernstein gave the stock a sell-equivalent rating and a target of 25.5 riyals. While analysts at Arqaam said they expected a gradual annual increase of 2 per cent in shareholder payouts, analysts at Bernstein flagged corporate governance as a key risk for investors as the Saudi government owns 98 per cent of the stock.
Investors abroad and analysts have been sceptical about the firm’s targeted valuation when being exposed to volatility of oil and gas prices, adding to the fact that it may also come under pressure from environmentalists to cut emissions and curb climate change even as it claims to be ‘the cleanest major oil company’.
“For investors who have benefited so far, we would take profit here,” said Neil Beveridge, senior oil analyst at Sanford C. Bernstein. “For those who have not, we would wait until a better entry point, which will eventually come.”