Saudi Arabian equities are better placed to outperform the other global equity markets, according to a fund manager survey by the Riyadh-based brokerage Al Rajhi Capital.
The Saudi equity market, dominated by banks and energy, is well positioned to tackle the double whammy of rising interest rates and inflation.
Among sectors, the survey participants voted Banks to outperform, followed by Petrochemicals, Software & Services and Healthcare.
"This indicates that the buy side’s view is driven by the current macro developments, which is dominated by headlines over the US Fed rising interest rates and inflationary environment across the world," Al Rajhi Capital said.
Saudi banks, that have high exposure to Current Account Savings Account (CASA), would benefit from higher interest rates supported by better Net Interest Margin (NIM).
On the other hand, both Petrochemicals and Healthcare are considered to provide a decent hedge against inflation. While the Software & Services could continue to benefit from the digitization trend in Saudi Arabia, the rise in wages in the IT sector would be a downside.
The fund managers believed Insurance and Food & Beverages would underperform the most followed by retail. "We do not disagree, except for Insurance, where we believe the sector could recover from last year’s impact of high loss ratios and weak pricing environment," the brokerage added.
Those surveyed also held that Food and Agriculture Sector would be the most impacted by inflation in terms of growth and margins.
Elsewhere, 72% of the survey participants believed that removal of travel restrictions in Saudi Arabia would have minimal adverse impact on local healthcare demand if outbound medical tourism picked up.
(Writing by Brinda Darasha; editing by Seban Scaria)