UBS executive Michael Bolliger says any profit-taking when the Tadawul joins the EM index will be compensated for by passive flows and a few active managers. Image Credit: Ahmed Ramzan/Gulf News

Dubai: Saudi Arabia’s Tadawul index has been the best performing regional index so far in the year, but investment bank UBS says this is not enough to make the financial institution “super bullish” on the gauge.

The Tadawul index has gained 8.94 per cent since January 1, outperforming the Dubai Financial Market general index, which has risen only 2 per cent, with most of the recovery seen in February.

The Abu Dhabi Securities Exchange was one of the best performing stock indices last year, mainly to a surge in banking stocks due to a merger.

“Saudi is on an expensive side. But it’s not really so expensive that we would be concerned about it. Plus you have relatively solid earnings growth. These are not factors that would make us super bullish, but in combination with the technical picture. It is fair to assume that the market would be supported over the next 6-12 months,” Micheal Bolliger, Head Asset Allocation Emerging Markets at UBS Wealth Management told Gulf News.

Ahead of the inclusion in the FTSE Emerging market index, the Tadawul index jumped nearly 1 per cent.

Tadawul, where foreigners have been net buyers in Saudi stocks so far, will be included in FTSE Russell emerging market index from Thursday in a phased manner in five tranches, and will represent 3 per cent of the index.

MSCI will include the gauge in its emerging market index with a weight of 2.6 per cent.

“You would see some profit-taking but it would be compensated by passive flows and a few active managers. Anecdotal evidence suggest that real money investors that are benchmarked to EM haven’t allocated that much to Saudi,” Bolliger said.

When asked, if he considered Saudi Arabia a bright spot in the emerging market equities, he said: “I like the story from a longer term point of view. We have this grand plan in terms of Saudi Vision 2030. There is a lot going on in financial markets; if they [Saudis] are successful, then it would have significant implications for global investors.”

The Saudi bourse has a market capitalisation of more than $535 billion, making it the largest equity market in the region.

UBS also like Egyptian bonds, in which they have 2-3 per cent of its total exposure.

Foreign investors held $15.8 billion of Egyptian treasury bills and bonds at the end of February, according to the country’s finance minister.