Best Performing Saudi Arabia Equities Seen Extending Gains

Dubai: Boosted by the inclusion in the FTSE Russell’s emerging market index, Saudi Arabia’s Tadawul index, which has been the best performing regional equities, has room for upside going ahead, analysts said.

The Tadawul index gained 7.95 per cent since January, the most in the region, compared to 6.93 per cent loss registered on the Dubai Financial Market General Index.

“We believe there is room for further upside for MSCI Saudi Arabia and select Saudi bonds ahead of the MSCI announcement. The Saudi economy is recovering and earnings are still below peak. Meanwhile, fiscal and external balances are getting healthier,” Michael Bolliger, Soledad Lopez and Jérôme Audran, analysts at UBS said in a note.

Fund managers expect passive inflows of $5-7 billion (Dh18-25 billion) from the FTSE Russell decision to include Tadawul with a weightage of 2.7 per cent on the emerging market index. The MSCI decision is due later in June, which analysts expect could attract flows of more than $40 billion.

Even the valuations are attractive compared to its regional peers.

“The Saudi index is trading at fair value relative to its three-year average and consensus expects close to 14 per cent earnings growth in the next 12 months,” analysts from UBS added.