Saudi equities volatility rises on coronavirus concerns, says Al Rajhi Cap

Increasing concerns on coronavirus outbreak have resulted in rising stock market volatilities and net declines as the market digests the impact on companies, Al Rajhi Capital said in its recent report on the impact of the virus on Saudi equities.

Oil being one of the major causalities is expected to have a cascading effect on the local economy, the report said.

Other than oil, companies exposed to Asian markets for exports, raw material imports from China, ones with high debt, high valuation multiples, government receivables and the ones linked to travel/tourism are likely the most affected.

The relatively more defensive names are the consumer staples, telecom services and local cement firms/retail banks to an extent.

Meanwhile, those companies that face higher competition from Chinese exports such as Saudi Ceramics could benefit.

Thereafter, the brokerage firm recommended not buying into dips, as markets are expected to correct further before a recovery in the second half of 2020.

In 2020, Al Rajhi forecasted that banks are likely to be in a challenging phase with expectations of a decline in lower interest rates translating to lower net interest margin security (NIMs) and economic situation leading to marginally higher cost of risk.

For petrochemicals, the overall sales volumes can weaken due to lower demand, as the majority of the companies sell to Asian economies. “Expectations of a recovery in H2 2020 will likely now shift to H2 2021,” the report highlighted.

Some companies may not fully reflect the impact in Q1 results, as there could be selling from inventories and impact may take longer with exceptions being cash rich firms that look attractive from a dividend perspective, Al Rajhi pointed out.