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Tadawul passes 2020 test with flying colors

This picture shows a view of the sign showing the logo of Saudi Arabia's Stock Exchange Market (Tadawul) bourse in Riyadh. (File/AFP)
This picture shows a view of the sign showing the logo of Saudi Arabia's Stock Exchange Market (Tadawul) bourse in Riyadh. (File/AFP)
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26 Dec 2020 04:12:57 GMT9
Frank Kane
26 Dec 2020 04:12:57 GMT9

At Tadawul, the Saudi Stock Exchange, they might be forgiven for asking: “Crisis? What crisis?”

While the world struggled to deal with the economic impact of the COVID-19 pandemic, and Saudi Arabia in particular with the resulting fall in oil revenues, the Kingdom’s stock market had one of its best ever years, becoming the leading regional market for new listings, and expanding its range of investment offerings at a rapid pace.

In fairness, Saudi markets were only following a global trend in which financial markets — boosted by trillions of dollars’ worth of stimulus aimed at mitigating the effect of the virus — largely ignored the dire economic news.

Predictions that stock markets were due a significant correction failed to materialize. Despite the economic shock, falling revenue and profits and general uncertainty, corporate equities continued to benefit from the global liquidity phenomenon.

The TASI Index — which gauges the performance of the biggest companies listed in Riyadh — recovered from a big downturn in spring to end the year strongly, well above the 8,000-point level for most of the final quarter.

The constituents behind that surge reflected the way that the pandemic has re-ordered investor and economic priorities. The biggest gaining sectors included consumer durables, food retailing, software, services, pharmaceuticals and healthcare. People want to eat, shop and stay healthy during the pandemic.

It is worth noting, however, that some of the more significant sectors that make up the index — such as real estate, banks and energy — lagged behind, with single-digit negative performances compared to the big percentage gains by the others.

But overall market strength was enough to persuade a raft of corporates that the time was right to list their shares on Tadawul. In this, of course, they were following in the footsteps of Saudi Aramco, which just over a year ago pulled off the biggest initial public offering (IPO) in history with its $29 billion share sale.

The Saudi market can take satisfaction from having navigated one of the most difficult years in investment history with self-confidence and resilience.

Frank Kane

There had been fear that such an enormous flotation would drain liquidity from Tadawul, but that did not happen.

In fact, the reverse was the case in 2020. Saudi companies raised a total of $1.5 billion during the year, more than some big European markets, in a vote of confidence in the Kingdom’s ability to get through the pandemic crisis.

Perhaps the two most notable were the Dr. Sulaiman Al-Habib Medical Services Group and the BinDawood Holding listings, which underlined the big investment theme of the year: Anything that facilitates medical wellbeing, like Al-Habib, and access to the essentials of life, like BinDawood’s grocery retail business, will command a premium in the markets.

Both listings were well in demand and performed strongly in the aftermarkets, raising the potential for further IPOs next year. A number of big corporates have signaled their intention to sell shares on Tadawul in 2021, while it is also expected that the stock exchange will advance plans for its own long-awaited IPO in the course of the year.

The other big development by Tadawul policymakers was the introduction of a number of trading innovations in the course of 2020.

The exchange introduced trading in equity derivatives in the summer as part of a strategy to attract more sophisticated foreign investors to trade in Saudi stocks. Instruments such as futures, options and swaps are all part of the regular global investor toolbox as methods of hedging risk and enhancing liquidity.

The investment world welcomed Tadawul’s efforts in this direction, with the proportion of shares held by foreigners — including other Arab Gulf investors — climbing steadily in the course of the year.

There will be plenty of challenges in 2021, not least the lingering suspicion among many analysts that global stock valuations, Saudi included, have reached historically high levels and are due some kind of correction.

But the Saudi market can take satisfaction from having navigated one of the most difficult years in investment history with self-confidence and resilience.

  • Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai
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