DUBAI: Shares in Saudi Arabia pulled back on Tuesday as local short-term investors booked profits in stocks that had jumped when Deputy Crown Prince Mohammed bin Salman announced economic reforms on Monday.
Riyadh’s stock index, which had gained 2.5 percent on Monday mainly from banks that could win business handling the government’s privatisation plans, dropped 1.6 percent. Trading volume shrank by almost one-third.
Samba Financial Group, lead underwriter of the recent initial public offer of Middle East Healthcare, dropped 5.3 percent after rocketing 9.3 percent on Monday.
Because the reforms will take years, most fund managers do not expect any immediate, extended rally of the overall stock market.
“The implications for Saudi non-oil growth would provide a meaningful uplift to Saudi earnings in the medium to long term,” said Mohamed Eljamal, head of asset management at Abu Dhabi-based Waha Capital.
Khaled Abdel Majeed, managing partner at London-based asset manager MENA Capital, said his fund might conceivably put more money into Saudi Arabia in the wake of the reform announcement, but would do so very selectively.
“At the moment the Saudi market is 15 times trailing earnings for 2015, but earnings in the first quarter of 2016 were flat, so zero growth, so if you annualise that and assume there will be no growth in 2016, then you are talking forward earnings of 15 times,” he said.
“At that price, I don’t think I am being paid enough to take that risk. If it was trading at 10 times, then yes, maybe.”
However, some stocks gained on Tuesday on the belief their industries would benefit from the reforms.
Saudi Arabian Mining Co (Ma’aden) rose 0.6 percent. One target of the economic plan is to raise the mining industry’s contribution to gross domestic product to 97 billion riyals ($25.9 billion) and increase the number of jobs in the sector by 90,000 by 2020.
Builder Abdullah Al Khodari Sons climbed 2.0 percent after Prince Mohammed said on Monday that all state infrastructure projects were continuing.
Khodari earns a major part of its revenue from government contracts and last year was awarded a contract from Ma’aden for work on a phosphate complex.
Al Khaleej Training climbed 0.4 percent and Mouwasat, which runs and manages medical centres across the kingdom, rose 0.2 percent. Education and training are expected to be central to the effort to modernise the Saudi economy.
Elsewhere in the Gulf, earnings determined market performance with Dubai’s Emaar Malls, a unit of Emaar Properties, jumping 4.2 percent after it reported a 22 percent rise in first-quarter net profit as rental income grew.
The commercial real estate operator made a net profit of 529 million dirhams ($144.03 million), beating EFG Hermes’ forecast of 451.9 million dirhams.
Emaar Properties, which has not yet reported earnings, rose 1.2 percent.
But telecommunications operator du edged down 0.6 percent after it reported a 1.4 percent fall in first-quarter net profit because it paid a higher rate of tax than a year earlier.
The firm made a net profit of 480.1 million dirhams; analysts at EFG Hermes and SICO Bahrain had forecast 480.7 million dirhams and 501.6 million dirhams respectively.
Dubai’s main index added 0.2 percent, but neighbouring Abu Dhabi’s index dropped 1.1 percent, weighed down by blue chips.
The emirate’s largest listed stock, telecommunications operator Etisalat, retreated 2.1 percent after it reported an 8 percent fall in first-quarter net profit.
Etisalat made a net profit of 2.00 billion dirhams, after analysts at EFG Hermes and SICO Bahrain forecast 1.93 billion dirhams and 1.99 billion dirhams respectively.
Dana Gas tumbled 3.5 percent after chief executive Patrick Allman-Ward said it had not been able to reach an acceptable deal with Iran on natural gas imports into the United Arab Emirates, and that an arbitration process would continue.
In Egypt, which was closed on Monday for a public holiday, the main index climbed 1.9 percent to 7,889 points, its highest close since mid-August last year.
Foreign investors were aggressive buyers of Egyptian shares, bourse data showed, with some of their top picks leading gains. Commercial International Bank surged 7.1 percent.
But Orascom Construction fell 2.5 percent after it reported a 2015 net loss of $334.4 million, though it predicted a return to profitability in the first quarter of this year.
Copyright Reuters, 2016
Courtesy : BRecorder