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Saudi stocks: Major global moves may outweigh seasonal pattern

RIYADH: Major moves in global markets are likely to outweigh the impact of the seasonal pattern around Ramadan on the Saudi stock market, according to Jadwa Investment .

As the holy month of Ramadan approaches, it is an opportune time to highlight the distinctive patterns of stock market performance in and around the month, the Jadwa report said.

Jadwa Investment examined this topic in detail in a report issued ahead of Ramadan last year and in general the performance of the market and of individual sectors in 2010 was in line with the trends identified.

The ongoing shift in the Hijri calendar against the Gregorian calendar means that normal patterns of pre-Ramadan trading will probably be distorted by the second quarter results, but the trading pattern during and immediately after the month should hold.

The TASI declined during the first three weeks of the month then picked up in the final week. It posted a notable rise in the first week after Eid Al-Fitr, in line with the seasonal norm, but then gradually fell back. The week before Ramadan was flat; it had fallen in the corresponding week in six of the ten previous years.

Performance by sector was also in line with the historical pattern.

In each case, the moves during Ramadan 2010 were in line with the average performance over the previous 10 years.

Banks and telecoms both rose faster during Ramadan than on average.

In the case of the former, this is because Ramadan is the time of peak spending, which is often funded by borrowing.

For telecoms, the influx of foreign pilgrims during Ramadan generates exceptional roaming revenues.

The underperformance of cement may be due to much lower sales, as far less construction can take place given shorter working days and fasting workers (this also affects the building and construction sector).

The reason for the downturn in the insurance sector is unclear, the Jadwa report said.

Banks and telecoms were among the three sectors that outperformed the 0.7 percent gain in the TASI over the course of Ramadan last year.

The other was industrial investment, which is little impacted by Ramadan.

Of the remaining sectors that would logically be influenced by Ramadan, agriculture and food was up, which is to be expected during the time of peak food consumption. Retail and hotels were flat, even though Ramadan is a time of high consumer spending and peak hotel occupancy and room rates in Makkah and Madinah.

The Jadwa report sees no reason why the seasonal trends outlined above should not be repeated this Ramadan, which starts on Aug. 1.

While local retail investors continue to dominate stock market trading, the influence of the changes to life during Ramadan cannot fail to impact on share price movements. Whether the full seasonal pattern is maintained over future years will be influenced by the timing of school holidays.

As Ramadan moves earlier in the year, it will soon be possible for Saudis to take their main summer vacations after Ramadan and before the schools restart, which would probably dampen the revival in the market that has generally occurred after Eid Al-Fitr.

Of course, international events impact on stock market performance throughout the year, and Ramadan is no different.

The collapse of Lehman Brothers in 2008, which dramatically intensified the global financial crisis, occurred during Ramadan.

One potential risk this Ramadan is the market reaction if the US fails to reach an agreement on extending its debt ceiling by Aug. 2, after which it would be unable to honor all its debts.

Concerns about euro zone debt, which have recently pushed the TASI down recently despite encouraging second quarter results, should ease over the near terms following the agreement of another debt restructuring for Greece, the Jadwa report said.

© Arab News 2011