All eyes are on the Saudi stock market’s blue chips this week, with additional liquidity expected after the MSCI and FTSE indices’ periodic reviews.
Al Rajhi Capital expects $537 million in inflows into Saudi Aramco shares, with a new amendment to one of the basic rules of the MSCI index related to the mechanism for calculating the percentage of free shares for international investors, as it decided, starting from the current November review, to consider the holdings of local investment institutions as free shares.
The new amendment is scheduled to be implemented tomorrow, Monday, and Al Rajhi Capital estimates that Aramco’s relative weight will increase to 13.4% from 10.4% in the MSCI Saudi Arabia Large Cap Index, according to a research note from the company on November 7, a copy of which was seen by Asharq.
In a similar move, FTSE announced changes to the investability weights of Saudi Aramco and STC to 2.4% and 38%, respectively. Al Rajhi Capital expects inflows into the two stocks of $233 million and $25 million, respectively, according to a note the company sent to clients on Wednesday. The changes to the FTSE index will take effect in December.
Expected liquidity
New inflows from MSCI passive funds could provide an opportunity to boost market momentum, said Mary Salem, a financial analyst at Asharq. Al Rajhi Capital estimates that the additional inflows could be equivalent to 5-6 business days of trading based on the average daily trading volume of Aramco shares over the past 3 months.
Salem believes that the increase in oil prices last week by more than 5%, in addition to the rise in global stock indices, in addition to Moody's raising Saudi Arabia's credit rating to Aa3, supports investor sentiment.
Moody's has upgraded Saudi Arabia's credit rating to Aa3 from A1 with a stable outlook, as it expects the country's economic diversification and momentum to continue. The agency believes that this continued progress will, over time, reduce Saudi Arabia's exposure to oil market developments and the long-term carbon transition.
Salem expected some positive interaction in this week’s sessions, if oil prices stabilize and contribute to supporting the market’s gains. She pointed out that the energy, utilities and basic materials sectors are under the microscope this week, after recording slight declines last week.
Return of dividends to the market
The Saudi market has been performing erratically for some time now, despite positive financial results from companies and local drivers of restructuring and initial public offerings; the main reason is the fluctuations in oil prices, according to Salem, noting that the market peaked in March, when oil prices were at $90.
Part of the cash dividends totaling SAR 495 million from Sulaiman Al Habib, Aslak and Aldawa are also expected to head back to the market on Sunday and Monday. Salem said last week that the companies’ dividends would only have a temporary impact on the performance of stocks by boosting their liquidity.
Shares of Saudi Arabia’s third-largest food producer, Sadafco, received a boost on Thursday after the company’s board called an extraordinary general assembly to vote in December on buying up to 2.75 million treasury shares at an estimated price of 345 riyals per share, just 0.23 percent higher than Thursday’s closing price of 344.2 riyals per share.
The stock is down about 9% from its highest level in a month, and the board of directors believes the stock price is below its fair value, according to a statement on the Saudi Stock Exchange.
Saudi repatriation hits record high
This week, we will be closely monitoring the performance of insurance companies, after the share prices of 10 companies achieved increases exceeding 3% during the past week, which pushed the sector to second place in the market in terms of performance.
Medgulf Insurance topped the list of the most rising stocks, up 22% in the past week alone, while Saudi Re hit a new record high after rising 19% during the week.
