Tadawul trading screen
Tadawul All Share Index (TASI) hit record levels of 12,400 points during the Holy Month of Ramadan, which usually witnesses calm trading. This was driven by investor optimism about future interest rates and investment opportunities, as well as momentum of government spending, according to analysts polled by Argaam.
Trading volumes moved higher, supported by institutional investment portfolios and foreign investors, the analysts noted.
Market movement in Ramadan
Abdullah Al Hamed, Head of Client Investment Advisory at GIB Capital, said the market was affected by investor optimism about interest rates in the future, expecting a potential cut in the coming period despite forecasts do not necessarily show an immediate reduction. Investors are confident that the US Federal Reserve would cut interest rates, especially after they have reached a peak.
Abdullah Al Hamed, Head of Client Investment Advisory at GIB Capital
Abdullah Al Hamed, Head of Client Investment Advisory at GIB Capital, said the market was affected by investor optimism about interest rates in the future, expecting a potential cut in the coming period despite forecasts do not necessarily show an immediate reduction. Investors are confident that the US Federal Reserve would cut interest rates, especially after they have reached a peak.
Al Hamed added that the market’s general trend is positive in the medium to long term, but with some fluctuations that may be associated with reaching fresh record levels. He noted that that market may witness a correction and profit-taking by some individual investors, especially when recording strong large gains, but in general, the trend remains positive.
On the other hand, Ali Bukhamseen, CEO of Tanmea Center, said the index performance was buoyed during the Holy Month of Ramadan by the robust liquidity and available investment opportunities in the market. This was due to the belief that there are promising investment opportunities at the current prices for several companies, as well as the large government spending and the growth momentum of the national economy.
The market got also a boost from the earnings posted by several companies in Q4 2023, as well as the strong investment channels in the stock market compared to the real estate sector whose prices became high, amid the difficulty of speculation after the implementation of the real estate transaction tax.
Al Hamed indicated that several factors affected the market over the last period, including the Q4 2023 results, as some companies positively or negatively impacted the market based on their performance during this period. Some global economic data such as inflation rates, which were in line with forecasts, fueled investor confidence in the market and pushed it to new levels.
The travel, tourism and hospitality were among the sectors that were impacted positively, due to the increased demand for tourism in the Kingdom during Ramadan, Al Hamed said. He added that the banking sector performed well and continued to support the market in general, as it constitutes 40% of the index weight. As for the petrochemicals sector, it did not respond well to positive events in the market, which negatively affected the index in general, despite its recent improvement.
Bukhamseen said the market was impacted by some external factors, such as holding the interest rates steady, which contributed to boosting investors’ appetite not to exit the market, especially amid the availability of opportunities to compensate for previous losses resulting from interest hikes.
The market usually witnesses clam trading during the Holy Month of Ramadan. However, this year witnessed an unprecedented trading activity, which led to a noticeable rise in the market during the first weeks, as the index reached record levels of 12,800 points.
Previously, several individual investors used to exit the market in Ramadan to meet their consumer spending requirements during Eid al-Fitr. Meanwhile, major institutional investors usually seek to reduce their portfolios due to the Eid holiday. In addition, they prefer not to take risks amid the economic and geopolitical variables that may affect prices.
Bukhamseen noted that this reflects the availability of proper investment opportunities that should be seized. Therefore, the market maintained its strong performance until the last day before Eid holiday and managed to compensate for its decline to some extent.
The change in trading behavior during Ramadan reflects investors’ confidence in the market and the national economy, as well as the availability of strong liquidity. This strongly helped the market maintain its upward trend, Bukhamseen said.
Petrochemical sector
Al Hamed stressed that it is still too early to talk about the recovery of optimism in the petrochemical sector, as some companies posted losses for the fourth quarter of 2023, but their stocks moved higher, which indicates that investors have absorbed the negative news of such companies.
The sector is completely linked to global markets and global economies, and therefore its impact locally is very limited, Al Hamed said. He added that investors should wait for some confirmed signs of improvement, including the recovery of growth in the global economy, which will enhance demand for petrochemicals.
The recent rise in some petrochemical companies was due to the fact that all the negatives are currently factored in the stock price, as some investors began to build positions in such companies in preparation for any potential improvement from the second half of 2024 to the first half of 2025.
Strong liquidity during Ramadan
Bukhamseen said there was a remarkable increase in the daily trading volume during Ramadan, which greatly exceeded expectations, reaching around SAR 10 billion.
On the other hand, Al Hamed said this rise was largely due to the interest of investment institutions and foreign investors in the market, as they were the main buyers over the last period. He added that despite the presence of speculative trading, there was position building by some institutional investors, which also stimulated this growth in trading volumes.
Bukhamseen said speculation indirectly contributed to the increase in trading volumes that are linked to the attractiveness of the market, as well as the stability and growth of the economy. In addition, the entry of strong liquidity is affected by objective conditions, including corporate results, stock prices and multiples, as well as investors’ analysis of the stock’s interaction and their expectations to inject further liquidity.
Ali Bukhamseen CEO of Tanmea Center
The increase in trading volumes was driven by institutional rather than individual investment portfolios to achieve certain goals at an appropriate moment, and it cannot be denied that there were speculations from individual investors, but they are not the main source of liquidity.
Post-Eid al-Fitr factors
Bukhamseen expected the upward trend to continue slowly due to the start of disclosing the first-quarter results, marking a period of anticipation and seizing investment opportunities.
He added that this confirms expectations for an upward trend amid fluctuations during the first quarter, which will appear after the resumption of trading. Influential external factors such as geopolitical developments should also be taken into account.
Another reassuring factor is the positive response to stabilizing or cutting interest rates by the Federal Reserve, which is expected in the second half of 2024.
The research firms expect a significant increase in Q1 2024 results, with some companies seen to post a more than 100% surge in earnings, such as ACWA Power, Ades Holding and NADEC. In addition, more than 63 firms will likely report varied profit growth percentages, which will boost demand for their shares and the index performance.
Varied performance of companies and sectors, are there any opportunities?
Al Hamed added that small and medium-sized enterprises (SMEs) showed excellent performance, with some of them achieving significant profit growth that greatly exceeded expectations. Although some estimates indicate profit growth, they do not justify the current stock prices.
While major companies showed strong performance, they are still below their historical levels and fair valuations, such as Aramco, SABIC, and stc that have not witnessed significant movement in the market.
The banking sector did not witness significant performance, but it is still lower than its historical evaluations and the earnings-based expected evaluations, Al Hamed said, expecting this sector to show much more improvement.
Meanwhile, Bukhamseen pointed out that small companies showed varied performance compared to their major peers, especially amid forecasts for future performance based on the companies’ position in the key sectors of the market.
Certain sectors are expected to perform well in the coming period on motivational factors, such as the insurance sector whose earnings will likely improve significantly due to its organizational and performance improvement.
Further, the healthcare and medical services sectors will likely witness an increase in their earnings, spurred by the improved earnings of most companies, as well as anticipation of the decision to launch the National Insurance Program by mid-2024.
Bukhamseen also predicted other sectors to witness improved performance, including the food sector, which witnessed an expansion in poultry production. He added that the construction, real estate development, and cement sectors would benefit from major projects related to the Public Investment Fund (PIF) and entertainment projects. The pharmaceutical industries will also get a boost from the strong performance of the medical sector.
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