Tadawul ready to join MSCI; TASI sheds 11% as part of correction: analysts

As Saudi Arabia gears up to join the MSCI Emerging Markets (EM) Index this month, the Tadawul market has shed 11 percent, making current stock prices attractive for investors, according to analysts surveyed by Argaam.

Ashraf Abu Shakra, Head of Products Development at Albilad Capital, said the market has seen recent corrections that led to a decline in stock prices. Aside from the upcoming MSCI inclusion, there are also geopolitical factors and other market conditions that impact sentiment, such as local holidays and seasonal factors.

“These events will only pressure the market in the short-term,” Abu Shakra added.  

“The outlook will remain positive especially for companies with strong fundamentals and defensive sectors in the long run, due to Tadawul’s inclusion in MSCI index,” he noted.

According to data compiled by Argaam, the market saw a surge of 20 percent year-to-date.

“Prices of the 30 firms joining MSCI EM Index are still high, despite a marginal decline in line with the market movement,” said financial adviser Dr. Abdullah Baashan.

The outlook for those stocks not only focus on price, but also on earnings growth.

“When markets develop and open to other markets, they witness strong fluctuations along with fast inflows and outflows,” Baashan added.

Meanwhile, there might be no prior coordination between regulatory authorities and index providers while choosing the best time for Saudi Arabia’s inclusion in the MSCI EM Index. The market will close for Eid holiday after its inclusion.

Abu Shakra also said he expects the market to recover and achieve its long-term targets driven by the positive indicators unveiled recently by the Ministry of Finance.

Accordingly, investors will have increased appetite for investment funds and government products, such as sovereign sukuk.

Analyst Abdullah Miqdad said current stock prices are more attractive for purchasing by funds and investors, with many firms showing strong operating efficiency.

TASI could consolidate above the 8,000 market at present. It will achieve its long-term targets when geopolitical remarks become quieter in the Middle East depending on stability of oil prices.

Economic consultant Basem Hashad said Tadawul’s inclusion in MSCI EM index will offer a good opportunity for the fair valuation of these stocks.

Capital inflows will also enhance the Kingdom’s balance of payments. The existence of new investors in the market will offer more privileges to free float stocks, Hashad added.

Hashad shrugged off any significant impact from Saudi Arabia’s inclusion in the index despite the expected foreign and local cash flows amid enhanced disclosure, transparency and diversified investor base.

Tadawul, like other markets in Dubai, Abu Dhabi, Portugal, Greece and South Korea, is witnessed declines ahead of joining the index as part of market correction.

“It’s normal and expected for the Saudi market in light of its relative weight and the size of the 30 stocks, which will be included,” Hashad added.