Saudi Arabia’s Tadawul index (TASI) has dropped ten per cent from its 2012 high of 7,930 on April 3, according to a report by Riyadh-based Jadwa Investment.
The index had risen by 22 per cent over the first quarter of the year, pushing the volume of shares traded to over SR21 billion ($5.9 billion) per day.
The first quarter net profits of companies listed on Saudi Arabia’s Tadawul index also rose 14.9 per cent year-on-year. Their combined net income reached SR25 billion ($6.6 billion) during the period, and all except one of the 15 sectors recorded higher profits compared to the first quarter of 2011.
However, deteriorating global sentiment has led the index to drop in the last six weeks, said the report. Although recent economic data from the US has improved, the political instability in Europe is still continuing, with Greece close to an exit from the Euro.
“These tensions have pulled down oil prices, another element that supported the earlier run-up in the TASI,” it said.
“In addition, the prospects of military action against Iran have diminished reducing the risk premium in oil prices. Lower regional political risk should be good for the TASI, 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,” Jadwa said.
Another factor that may have caused a fall in TASI is uncertainty over the timing of a fuller opening of the stock market to foreign investors.
Many investors had assumed that the market would be opened to foreign investors earlier in the year after various administrative procedures to support the process were implemented, said the report.
However, the Capital Market Authority recently indicated that the opening will take place gradually and when it thinks market conditions are appropriate.
“By dampening expectations of an imminent move, some funds that entered the market in anticipation of greater foreign participation may have been withdrawn,” it added.
However, Jadwa is optimistic that the markets will pick up again this year.
“We maintain our view that the TASI will end the year around 8,050. Domestic fundamentals are strong and we see little that could derail the earnings momentum of local companies unless oil prices fall dramatically.
“Global concerns will hang over the market and pose the main risk to our outlook. Nonetheless, we assume that after a period of uncertainty there will be an improvement in global market performance later in the year,” it added.