Foreign investors sold the most Saudi Arabian stocks in almost five months last week as concerns about economic growth and a disappointing outlook for banks in the kingdom hit sentiment.
(Bloomberg) — Foreign investors sold the most Saudi Arabian stocks in almost five months last week as concerns about economic growth and a disappointing outlook for banks in the kingdom hit sentiment.
Outflows reached 6.5 billion riyals ($1.7 billion) in the week through Aug. 3 as the benchmark Tadawul All Share Index slumped 4%. That resulted in the largest net exit by non-residents and worst performance by the local market since March, when global equities were in the grips of a crisis over the health of US banks.
A rally this year in the Tadawul pushed it to the brink of a bull market in late July, when eight straight sessions of declines halted its surge. A relatively stable oil price as OPEC+ members curbed production and a slew of government projects supported stocks before the recent drop.
“The downward trend is a natural occurrence following a strong rally in the early part of the year,” said Jassim Al-Jubran, head of sell-side research at Aljazira Capital. A downgrade by the International Monetary Fund of its forecast for Saudi growth in 2023 as well as cautious earnings guidance from some large banks also contributed to the decline, he said.
Divye Arora, a senior portfolio manager at Daman Investments, also linked the pullback to investors booking profits from the rally, together with increased flows to China following stimulus measures announced by Beijing.
Despite the recent drop, the Tadawul is still up about 8% in 2023, outperforming the MSCI Emerging Markets Index. And there are signs that more foreigners are interested in participating in the market, with Fiera Capital’s Dominic Bokor-Ingram doubling his fund’s exposure to Saudi stocks to 20%.
“The current selloff has exposed buying opportunities in selective names which continue to post strong earnings growth,” Daman Investment’s Arora said. “However, we won’t rule out a broader outflow from other emerging markets into China in case of any further announcements of concrete stimulus measures, as valuation remains undemanding.”
The Tadawul trades at a 26% premium to the MSCI EM Index, where China is the heaviest member, accounting for 28% of the developing nation benchmark.
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