Wednesday, Feb 22, 2012

--Tadawul Index tops 7000 for first time since October 2008

--Market now up almost 10% this year, after losing 3% in 2011

--Speculative names among top risers in current rally

By Nikhil Lohade

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Saudi Arabia's Tadawul All Share Index closed Wednesday above the 7,000 level for the first time since October 2008, as investors snapped up shares based on the kingdom's economic prospects, while a possible opening up of the Middle East's largest stock market to foreigners continues to whet risk appetite.

The region's biggest economy is expected to post solid growth this year, supported by buoyant oil prices and the government's commitment to high levels of spending. Moreover, the country is also considering opening its equity market to direct foreign participation, a move that could help attract new investment if it does eventually happen.

Given these scenarios, the market's current rally has surprised few participants. The benchmark Tadawul Stock Index ended 0.9% higher at 7031.26 Wednesday. The market had last closed above the 7,000 mark on September 28, 2008 at 7458.5, according to Zawya.com data.

"The rally is all domestic, driven by increasing levels of local liquidity," said a London-based equity strategist at an international investment bank. He added the market could hit the 7800-8000 level in the short term, and reckons a further foreign investor led mark up is still to come.

The Tadawul has now added almost 10% this year, after losing 3% in 2011, amid improving global risk sentiment and buoyant oil prices.

The Dow Jones Industrial Average hit 13,000 Tuesday for the first time since May 2008, after European leaders cleared another round of aid for Greece. Oil prices meanwhile finished at their highest level in nine months Tuesday, but were subdued in the current session.

In terms of sectors, investors have bought across the board, but volumes have been concentrated in the more speculative names, traders said.

The heavyweight banking and petchem stocks have recorded solid gains in 2012, but retail favourites such as insurance, transport and construction have been runaway winners so far.

Analysts at Riyadh-based Jadwa Investment, in a recent 2012 outlook report on the kingdom, said construction--the main beneficiary of government spending--should be the fastest growing sector this year. Jadwa also expects that government spending will be supported by greater bank lending and high consumer spending.

In terms of stocks, heavyweight Sabic rose 1.3% Wednesday to SAR100.5, while Al Rajhi Bank climbed 1.3% to SAR75.50 and Saudi Telecom added 0.5% to SAR37.40.

While investor confidence in the kingdom is currently high, several analysts warn that contagion risks from regional political turmoil and global economic concerns remain and could still cool the latest rally.

-By Nikhil Lohade, Dow Jones Newswires, +9714 446 1694, nikhil.lohade@dowjones.com

Copyright (c) 2012 Dow Jones & Co.

(END) Dow Jones Newswires

22-02-12 1333GMT