On Wednesday, after the biggest Saudi petrochemical firm Sabic's fourth-quarter results missed analysts' estimates, the country's stock index retreated the most in two months. However among experts, the Saudi market is expected to go higher in 2011. The market being still closed to foreign investors is going to act as a barrier to greater inflows. Gulf News interviewed experts from Rasmala Investments and Credit Suisse on their expectations for Saudi equities this year.
Marwan Haddad, Portfolio Manager, Rasmala Investment Bank:
Gulf News: Looking ahead, what are the prospects for the Tadawul in 2011?
Haddad: We strongly believe that the Saudi market will continue its upward trend in 2011 and expect it to perform better than last year and even to be one of the best regional performers over the course of the year. We believe that most investors have finished cleaning and re-organising their books during the past two years and are ready to increase their equity allocations.
Gulf News: What are the broad macro themes that are going to determine the market's prospects?
Haddad: The global economies are moving slowly toward full recovery; however each region still faces its own challenges. In the US many macro indicators showed improvements, but unemployment is still the biggest challenge. Before we see some significant improvement there, policymakers will maintain their current expansionary fiscal and monetary policy, which in turn will serve to extend the current rally in equity markets. Emerging markets are in very good shape and they are currently leading global demand and maintaining a healthy pressure on commodity prices. This is serving the GCC region pretty well, however, some contradictory measures are being taken in China to curb speculative inflows. Europe is going through the worst with so many credit issues and fiscal rationing, and no clear picture on the horizon. With so many mixed signals we believe that volatility will stay high in 2011.
Given all the above factors we think that investors will turn their eyes to the region and especially the Saudi market. However, since the market is still closed to direct foreign investments, this will curb some of the inflows.
Gulf News: Which sectors in Saudi Arabia are going to do well?
Haddad: We believe that the banking sector will pick up in 2011 with lower provisioning and higher loans growth. The petrochemical sector is expected to perform positively as well, supported by high oil prices and further expansion. The retail and consumer sector is also set for a good performance during the year.
Which are your top five picks for 2011?
Al Rajhi Bank, Bank Saudi Fransi, Saudi Basic Industries Corp (Sabic), Sahara Petrochemicals and Saudi International Petrochemical Company (Sipchem).
Kamran Butt, Director and Head Middle East Equity Research, Private Banking, Credit Suisse:
Gulf News: Looking ahead, what are the prospects for the Saudi market in 2011 when compared to 2010?
Butt: Despite Qatar outperforming the emerging market (EM) indices last year, the GCC markets on whole have underperformed the EM indices. However, with the backdrop of rising oil prices, robust recovery in economic growth, government spending programmes and attractive valuations, GCC markets could start to outperform in the near term. Saudi Arabia has an expected EPS growth for 2011 (with exception of the UAE) far superior to that of other GCC countries and in our view represents attractive value on a growth perspective.
Gulf News: What are the broad macro themes that are going to determine the market's prospects?
Butt: We believe Saudi Arabia's economy remains well positioned compared to most other GCC countries. Rising oil prices (where Saudi is the biggest beneficiary) also provides a backdrop to strong government expenditure which in our view is positive for Saudi corporates. Domestic consumption growth is also showing positive trends in Saudi Arabia. In addition, possible near term catalysts like the local financial regulatory authority (CMA) possibility providing direct stock market access to international investors who currently have to go through Saudi intermediaries. If markets are opened to foreign investors, this could provide strong momentum to the local equity markets.
In summary an accommodative monetary policy through the riyal peg to the dollar, huge fiscal stimulus planned by the government, higher hydrocarbon prices and possible improved access for foreign investors could be powerful drivers for Saudi stocks in 2011.
Mohamad Hawa, Head of Mena Equity Strategy, Equity Research, Credit Suisse Securities:
Gulf News: Which sectors are going to do well in Saudi Arabia?
Hawa: In Saudi Arabia, we still like domestic consumer plays (spending momentum remains strong), petrochemicals (firm prices and expanding volumes), and fertilizers (positive outlook of nitrogen prices due to near term tight supply and rising marginal production costs) while we remain wary of banks due to sluggish loan growth.
Gulf News: Which are your top picks for 2011?
Hawa: We expect chemicals and fertilizers to continue to do well in the first half of the year and that includes Saudi Arabia Fertilizers Company (Sqafco), Saudi Basic Industries Corporation (Sabic); and Saudi Arabian Mining Company (Maaden) as is the case for consumer plays such as Jarir Marketing and Mobily.
