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Fund managers are cautiously optimistic about Saudi Arabia's equity markets in the first quarter of 2023, with the majority backing an investment strategy that combines growth and value, according to a new survey by the Riyadh-based brokerage Al Rajhi Capital.
Despite current economic uncertainty and fears of an impending recession, almost 60% of the participants expect believe the markets will be in positive range, with 23% expecting gains of more than 5%, according to the survey.
Only 16% of those surveyed expected returns below 5% for Saudi equity markets.
In terms of sectors, banks are the most preferred, as despite concerns over higher interest rates, participants expected net interest margin expansion (NIM) and growth in corporate loans to drive banks’ profitability during Q4 2022 and Q1 2023.
This was followed by IT and Technology, "... a surprise to us given the valuations and the weakening growth prospects," the brokerage said.
Petrochemicals, usually a perennial investor favorite, topped the "unappealing" sectors list. Prices for petrochemical products have weakened in recent months on demand concerns due to the fear of a global recession as well as over supplied markets.
The retail sector was the second most unappealing sector, as per the survey.
In terms of market size, the votes were tilted towards midcap names indicating the asset managers are searching for high growth names.
Survey participants also favoured fixed income as an asset class, as much as they did equities. Al Rajhi said this supported their argument that high yield can be a factor in terms of asset allocations going forward.
Expectations that liquidity can be a near term risk factor for Saudi equity markets also support this argument, the report said.
(Reporting by Brinda Darasha; editing by Seban Scaria)