Shares in Saudi Arabia will offer the “value story” across emerging markets next year as stable oil prices and government spending are set to lure investors to the Arab world’s largest stock market, according to VTB Group.
“We expect the first half to be bullish for Middle East and North Africa equities and see Saudi Arabia as the value story for 2013 across the emerging market space,” analysts Digvijay Singh and Alexey Zabotkin at VTB Capital Plc, the London-based investment-banking arm of VTB, wrote in a research note today, with an overweight recommendation on the kingdom. Oil prices, infrastructure spending and dividend yields are among catalysts that will help boost share prices, they said.
Saudi Arabia, the world’s biggest oil exporter, is embarking on about $500 billion in government spending and projects including the world’s tallest tower in Jeddah. The Saudi benchmark Tadawul All Share Index (SASEIDX) gained 7 percent this year, lagging the 15 percent gain for the MSCI Emerging Markets Index. (MXEF) The Saudi index offers a dividend yield of 3.6 percent compared with 2.7 percent for MSCI EM Index.
The Tadawul All Share Petrochemical Industries Index is the second-worst performing sector among 15 sub-indexes on the index, with a decline of 5.2 percent, according to data compiled by Bloomberg. That’s left the companies valued at 14.4 times earnings, compared with 8.2 times earnings for MSCI EM energy stocks.
Saudi Basic Industries Corp. (SABIC), the world’s largest petrochemicals maker, has declined 5.7 percent this year after posting profit decreases in the past three quarters. Oil prices averaged 18 percent higher this year compared with 2010 and little changed from last year, data compiled by Bloomberg show.
Advanced Petrochemicals Co. (APPC), a manufacturer of polypropylene products, National Industrialization Co. (NIC), a holding company for industrial and manufacturing firms, and Islamic lender Alinma Bank (ALINMA) are among VTB Capital’s top five stock picks in the Middle East and North Africa. Telecom Egypt (ETEL) and Commercial Bank of Qatar, which have both lagged their benchmark stock indexes, also find a place on the list.
Saudi Arabia’s stock market is closed today for the weekend.
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