Market dips despite improvement in corporate profits in Q1
Deteriorating global sentiment has depressed Saudi Arabia's stock market by nearly 10 per cent over the past six weeks despite higher income by listed firms, a Saudi investment company said on Wednesday.
A fall in oil prices and receding prospects for an imminent opening of the Gulf Kingdom's bourse to foreign investors also contributed to the decline after a strong start in 2012, the Riyadh-based Jadwa Investment said.
It said first quarter net profits by the companies listed on Tadawul surged by nearly 14.9 per cent over the same quarter of 2011 due to better performance by the Saudi economy, the largest in the region.
"Nonetheless, the bourse is down by 10 percent since the end of March, mirroring falls on global markets, which have been unnerved by weaker economic data and a heightening political backlash against austerity in the Eurozone," Jadwa said in a study sent to Emirates 24/7.
Its figures showed net income of all listed companies in the first quarter was SR25 billion, an increase of 14.9 percent year-on-year. All except one of the 15 sectors recorded higher profits than in the first quarter of 2011.
Quarterly growth in net income, at 22.6 percent, was the fastest since the first quarter of 2010, it said.
Although petrochemicals was the only sector to post lower earnings in the first quarter than in the corresponding period of 2011, its decline was less steep than consensus expectations.
"Despite these healthy corporate results, it has been a tough six weeks for Tadawul. The euphoria that lifted the index by 22 percent over the first quarter of the year and pushed the volume of shares traded to over SR21 billion per day has faded," the report said.
"There are three factors that have deteriorated... global stock markets and oil prices have fallen and prospects for an imminent further opening of the stock market to foreign investors have faded. In addition, a tougher clampdown on speculation may have contributed to the decline."
Jadwa said it believes the main reason for the fall in the bourse recently is deteriorating global sentiment, which has been reflected in declines on global
stock markets. While recent data from the US has improved, this has not been the case in Europe.
At the same time, popular dissatisfaction with austerity in the Eurozone has intensified, with ruling parties suffering in elections, which for
Greece, has moved the country closer to an exit from the single Currency, the report noted.
"These tensions have pulled down oil prices, another element that supported the earlier run-up in the Saudi bourse. In addition, the prospects of
military action against Iran have diminished (owing to signs of concessions from the Iranians and the formation of the new coalition
government in Israel), reducing the risk premium in oil prices," it said.
"Lower regional political risk should be good for the bourse, but it has not responded to this, in the same way that it was not impacted by the
earlier heightened danger of conflict with Iran. Oil prices at their current levels (Brent is $112 per barrel) are still very good for the
Saudi economy and listed company earnings."
© Emirates 24|7 2012
