November 5, 2024

RIYADH: With the highest growth rate among the G20 countries, continued efforts to diversify the economy and a healthy flow of foreign direct investment, Saudi Arabia’s market performance has been strong. on.

“Tadawul is the largest stock exchange in the Middle East, and it aims to become a regional hub with cross-listings of companies from other Gulf countries,” said Waleed Rasromani, corporate mergers and acquisitions partner. in Dubai and Riyadh at Linklaters, a multinational law firm based in the UK.

Intense merger and acquisition activity coupled with significant growth in initial public offerings is leading the Kingdom’s market growth and is expected to carry that momentum into 2023.

Prepared for market growth

The Kingdom’s oil-led growth, oil-neutral strategy and government frameworks have created a solid foundation for the market’s impressive performance.

Strong liquidity, local investor appetite for Saudi stocks and the pursuit of the goals outlined in Vision 2030 have also accelerated the development of the market.

“The IPO market in the Kingdom is expected to remain strong, and we expect an increase in IPO traction. There does not seem to be any slowdown there,” said Ali Anwar, managing director and leader of the Middle East practice with Alvarez & Marshall Global Transaction Advisory Group in Dubai

A report released by the World Bank in November suggests that the growth of the oil sector is driving the Kingdom’s economy. As a result, the economy is expected to grow by 8.3 percent in 2022.

The International Monetary Fund also noted that Saudi Arabia will maintain its position as the fastest growing economy among the G20 countries despite economic difficulties.

Regarding legislative efforts, the Capital Market Authority is working to make the financial market more attractive and transparent and raise awareness among investors.

The CMA is focused on increasing institutional investor turnover to 41 percent of the total market turnover in the financial year of 2023.

The Kingdom’s Financial Sector Development Program is another factor that has enabled and supported the growth of the Saudi market.

Besides the IPO of Saudi Arabian Oil Co, it aims to increase the value of the stock market as a percentage of gross domestic product to 88 percent by 2030 from 66.5 percent in 2019. Saudi Aramco’s share price closed on December 29 at SR32 . 10.

Saudi government authorities are also encouraging the planned privatization of state-owned institutions through IPOs on the Saudi stock exchange.

In addition, Saudi companies prefer to list IPOs locally rather than on more developed stock exchanges, perhaps due to disclosure and corporate governance requirements.

“The Saudi government’s push for privatization has prompted many IPOs, and the participation of key sovereign funds and stakeholders in the capital markets is helping the Kingdom monetize its investments ,” said Ibrahim Soumrany, a partner at US-based law firm White & Case in Dubai.

Soumrany added that many foreign companies are considering listing in the Kingdom. As a result, there will be increasing support to allow dual listing in the coming years as more companies seek to list both in their local market and Saudi Arabia.

Solid performance

The Kingdom is the best performer among all emerging markets since COVID-19, with the Tadawul’s market capitalization rising 24 percent year-on-year to $3.19 trillion in the first quarter of 2022. The market capitalization on Dec.29 was nearly $2.63 trillion.

As of December, the earnings of Saudi-listed companies have grown 22 percent annually over the past three years. In addition, their revenues increased by 19 percent annually, indicating that these companies are generating more sales and their profits are increasing.

However, the Kingdom’s bourse owner recently recorded a 23 percent drop in revenue to SR367 million ($98 million) in the first nine months of 2022.

This decline was accompanied by a 7 percent decrease in revenue to SR849 million, mainly due to a decrease in trade and post-trade services.

Higher salaries and employee-related benefits further weighed on profits between January and September, leading to a 14.7 percent year-on-year increase in operating expenses to SR465 million.

At the start of December, the Kingdom’s stock market benchmark index fell 2.5 percent to hit its lowest since April, dragged down by a 4.9 percent and 4.7 percent plunge in Al-Rajhi Bank and Riyadh Bank, respectively.

Why? Because the Saudi riyal is pegged to the US dollar and the Saudi Central Bank follows the open market operations of the US Federal Reserve, the Kingdom was hit when the Fed continued quantitative tightening to reign in inflation.

“Tadawul is the largest stock exchange in the Middle East, and it aims to become a regional hub with cross-listings of companies from other Gulf countries,” said Waleed Rasromani, Corporate mergers and acquisitions partner in Dubai and Riyadh by Linklaters.

“However, the market will find some support in strong local fundamentals,” said Daniel Takieddine, CEO of the Middle East and North Africa region of the BDSwiss financial institution based in Seychelles.

The share prices of Al-Rajhi Bank and Riyadh Bank closed on Dec.29 at SR75.20 and SR31.80, respectively.

Gulf markets witnessed a banner year in terms of IPOs, benefiting from a war-driven surge in oil prices, with Saudi Arabia at the forefront.

The Kingdom also led regional listing activity despite a fall in IPOs in developed markets due to global uncertainties and stock market volatility.

“The IPO market in the Kingdom is expected to remain strong, and we expect an increase in IPO traction. It’s not as if there is a slowdown there,” said Ali Anwar, managing director and leader of the Middle East practice at Alvarez & Marsal Global Transaction Advisory Group in Dubai.

Saudi Arabia had two IPOs on the Tadawul and three on its parallel market Nomu in the third quarter of this year, making $490 million in total revenue, according to leading professional services firm Ernst & Young.

As early as next year, the Saudi market is expected to see growth in M&A activity supported by increased corporate motivation to increase shareholder wealth through strategic partnerships and business alliances, according to a Riyadh-based GIB Capital press release.

“We have seen a fundamental maturity in the attitude of the Saudi corporate community towards business combinations and partnerships, which is very good for our market,” said Khalid AlGhamdi, the acting CEO of GIB Capital.

Anwar further emphasized that despite the possibility of a decline in 2023 compared to last year, Saudi Arabia will maintain large financial buffers and continue ambitious investment programs in line with Vision 2030.

Future perspective

When asked about the outlook for 2023, Anwar told Arab News: “The Kingdom of Saudi Arabia is full of confidence.” On the other hand, Rasromani of Linklaters said, “I am optimistic for the coming year.”

This sentiment is reflected in Riyadh-based brokerage Al Rajhi Capital’s 2023 outlook report.

A survey from the report shows that approximately 60 percent of participants expect markets to be in positive range, 23 percent of which expect gains to exceed 5 percent, despite economic uncertainty and fear of recession.

The report identified the banking sector as the most desirable, where participants expect the expansion of net interest margins and growth in corporate loans to stimulate the profitability of banks in the fourth quarter of 2022 and the next one.

The petrochemical sector unexpectedly topped the list of the most attractive industries as prices weakened in the past due to demand concerns due to global instability.

“I expect the industrial sector to be active in the Kingdom as the push to localize supply chains continues, and renewable energy will also be of significant interest as more projects are launched,” Rasromani said. .

He added, “I am most excited about venture capital because this form of investment is becoming more sophisticated in the Kingdom, and it has the potential to change society and business for the better.”

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