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RIYADH: With the highest growth rate among G20 countries, continuous efforts to diversify its economy and a healthy inflow of foreign direct investment, Saudi Arabia’s market performance has been robust.

“Tadawul is by far the largest exchange in the Middle East and it is seeking to become a regional center with cross-listings of companies from other countries in the Gulf,” said Waleed Rasromani, mergers and acquisitions partner in Dubai and Riyadh. at Linklaters, a UK-based multinational law firm.

Intense merger and acquisition activity combined with significant growth in initial public offerings has seen the Kingdom’s market develop and is expected to carry this momentum into 2023.

Prepared for market growth

The Kingdom’s oil-led growth, non-oil diversification strategy and government framework created a strong foundation for its impressive market performance.

Strong liquidity, local investors’ appetite for Saudi shares and the pursuit of goals outlined in Vision 2030 have also facilitated the market’s development.

A report published by the World Bank in November suggested that growth in the oil sector is driving the kingdom’s economy forward. As a result, the economy is expected to grow by 8.3 percent in 2022.

The International Monetary Fund also noted that Saudi Arabia will maintain its position as the fastest-growing economy among G20 countries despite economic headwinds.

When it comes to legislation, the Capital Markets Authority works to make the financial market more attractive and transparent and to make investors aware.

The CMA is focused on increasing institutional investor turnover to 41 per cent of total market turnover by the financial year 2023.

The Kingdom’s financial sector development program is another factor enabling and supporting Saudi Arabian market growth.

With the exception of Saudi Arabian Oil Co. IPO, it aimed to increase the value of the stock market as a percentage of gross domestic product to 88 percent by 2030 from 66.5 percent in 2019. Saudi Aramco closing price December 29 at SR32. 10.

Saudi authorities are also stimulating the planned privatization of state-owned institutions through IPOs on the Saudi stock exchange.

In addition, Saudi firms prefer to list IPOs locally rather than on more developed exchanges, likely due to disclosure and corporate governance requirements.

“The Saudi government’s push for privatization has led to more IPOs, and the involvement of key sovereign wealth funds and capital markets stakeholders is helping the kingdom monetize its investments,” said Ibrahim Soumrany, a partner at US-based global law firm White & Case In dubai.

Soumrany added that several foreign companies are considering listing in the kingdom. As a result, there is growing support for allowing dual listings in the coming years as more companies seek to list both in their local markets and in Saudi Arabia.

Robust performance

The kingdom was the best performer of all emerging markets since COVID-19, with the market capitalization of the Tadawul up 24 percent year-on-year to reach $3.19 trillion in the first quarter of 2022. Its market capitalization as of Dec. 29 was nearly $2.63 trillion.

As of December, earnings for Saudi-listed companies have grown 22 percent per year over the past three years. In addition, their revenues increased by 19 percent per year, indicating that these firms are generating more sales and that their profits are on the rise.

Nonetheless, the owner of the kingdom’s stock exchange recently recorded a 23 percent drop in profits to SR367 million ($98 million) in the first nine months of 2022.

This decline was combined with a 7 percent decline in revenue to SR849 million, mainly due to the decline in trading and post-trade services.

Higher wages and employee-related benefits further weighed on earnings between January and September, leading to a 14.7 percent year-on-year increase in operating costs to SR465 million.

In early December, the king’s market benchmark for the stock market fell 2.5 percent to reach its lowest since April last year, with declines of 4.9 percent and 4.7 percent in Al-Rajhi Bank and Riyadh Bank respectively.

Why? Since the Saudi riyal is pegged to the US dollar and the Saudi central bank follows the US central bank’s open market operations, the kingdom takes a hit as the Fed pursues quantitative easing to control inflation.

“However, the market may find some support in solid local fundamentals,” Daniel Takieddine, managing director of the Middle East and North Africa region at Seychelles-based financial institution BDSwiss.

The share prices of Al-Rajhi Bank and Riyadh Bank closed on December 29 at SR75.20 and SR31.80 respectively.

Gulf markets have witnessed a banner year in terms of IPOs, benefiting from a war-driven surge in oil prices, led by Saudi Arabia.

The Kingdom also leads the way in regional listing activity despite the drop in IPOs in developed markets due to global uncertainty and stock market volatility.

“The IPO market in the Kingdom is expected to remain robust and we expect increased IPO traction. It does not appear that there would be a slowdown there,” noted Ali Anwar, Managing Director and Middle East Practice Leader at Alvarez & Marsal Global Transaction Advisory Group in Dubai.

Saudi Arabia had two IPOs on the Tadawul and three on the parallel market Nomu during the third quarter of this year, generating $490 million in total proceeds, according to leading professional services firm Ernst & Young.

As for early next year, the Saudi Arabian market is expected to see growth in M&A activity supported by growing corporate enthusiasm to maximize shareholder wealth through strategic partnerships and business alliances, according to a press release from Riyadh-based GIB Capital.

“We see a fundamental maturity in the attitude of the Saudi corporate community towards business associations and partnerships, which is very promising for our market,” said Khalid AlGhamdi, acting CEO of GIB Capital.

Anwar further highlighted that despite the possibility of a fall in 2023 compared to the previous year, Saudi Arabia will retain large financial buffers and push ahead with ambitious investment programs in line with Vision 2030.

Future prospects

Asked about the outlook for 2023, Anwar told Arab News: “The Kingdom of Saudi Arabia is full of confidence.” On the other hand, Rasromani of Linklaters said: “I am optimistic about the coming year.”

This sentiment is evident in Riyadh-based brokerage Al Rajhi Capital’s 2023 outlook report.

A survey from the report found that about 60 percent of participants expect markets to be in positive territory, with 23 percent expecting gains to exceed 5 percent, despite economic uncertainty and fears of recession.

The report identified the banking sector as the most preferred, with participants expecting net interest margin expansion and corporate loan growth to drive bank profitability during the fourth quarter of 2022 and beyond.

The petrochemicals sector unexpectedly topped the list of the most appealing industries as prices weakened earlier due to demand concerns due to global instability.

“I expect the industrial sector to be active in the Kingdom as the drive to localize supply chains continues, and renewable energy is also likely to be of key interest as a number of projects are launched,” Rasromani noted.

He added, “I am most excited about venture capital because this form of investment has become increasingly sophisticated in the Kingdom, and it has the potential to fundamentally transform society and business for the better.”