Where are Saudi stocks headed in 2023?

There is no exact census of investor losses due to the decline of global financial markets in the second quarter of this year, but it is certain that the figure far exceeds the volume of pessimistic expectations, which were launched with the beginning of the fall in stocks. , and now 2022 has passed with great worries for traders, a new year and new expectations await. By groping to draw a roadmap from the stock market crisis that burdened companies and investors.

The reasons and influences are numerous, but the most important among them remains the growth of the global economy, oil prices, and “geopolitical” opportunities. The second half of this year was like a maze, with the Ukrainian crisis, inflation, oil price fluctuations, the return of “Corona” to China and interventions by central banks to raise interest rates, because they did not. It is important which affects the other, but it is important how to get out of this crisis, overcome the losses, because each of them has its own consequences that cannot be overcome.

Walking on a minefield

At the outset, financial affairs expert and professor of economics, Dr. Muhammad Al-Qahtani, explains that predicting the future in the financial markets sector is very similar to walking through a minefield that has no boundaries. by presenting different expectations, so the prediction will refer to the future of Saudi stocks in 2023 by developing multiple scenarios that facilitate the reading of the local economic reality in the first degree and the global one in the second degree.

Best and worst predictions

Al-Qahtani indicated that the best expectations are related to a significant improvement in stocks based on good domestic economic growth and investor optimism that inflation will decrease in the United States and the exit from interest rate hikes, with an improvement in oil demand in light of China’s exit from the embargo imposed “Covid-19”. As for the worst expectations, which is the entry of the world into an economic recession due to the actions of central banks, a slow return of the industry to the state that preceded the pandemic, in terms of disruptions in production lines and serious confusion in supply chains, and a continuous drop in oil prices due to fluctuations in demand, which burdens the financial markets with the burden of investor confidence. In the markets, which means a bad year that will not bring anything new and may continue with negative results.

Attractive return

Al-Qahtani added that investors have attractive valuations, as the “Tadawul” index trades at a multiple of 13.4 times profitability, the lowest level since March 2020, and below the average of 14.7 times recorded over the past decade. and that “repetitions and lower prices will attract more attention.” Among funds dedicated to developing markets, whose investment positions in Saudi Arabia and the markets of the countries of the Gulf Cooperation Council are still very weak.

Interest rates and economic cycles

He pointed out that in exchange for optimism comes pessimism among traders in the market, in light of high interest rates, among other challenges, because the policy of the Saudi Central Bank is closely linked to the policy of the Federal Reserve, due to the linking of the rial to the dollar, adding that “Morgan Stanley” reduced his recommendation for Saudi stocks to “Asset Class Performance” last November, and that constraints on interbank funding, domestic bond issuance amid rising interest rates and a cyclical recovery in emerging markets are all tailwinds for optimists.

Conversion to fixed income assets

For his part, Financial Adviser Dr. Ali Al-Shakhs said investor sentiment was adversely affected by inflationary pressures and central bank measures to curb it, along with recession fears, as global markets generally witnessed sharp declines, forcing stock markets globally to suffer from a lack of liquidity amid high prices, and this has led to many funds moving into fixed income assets such as bonds.

The index writes off gains from the year

He added that the aforementioned factors contributed to the pressure on the Saudi market indices (TASI), as the index erased all gains for the year and even recorded losses of almost 10 percent, and the value of trading on the Saudi stock exchange. shrank by about 27 percent on a quarterly basis, reaching 730 billion riyals ($194.09 billion) at the end of the third quarter, compared with 994 billion riyals ($264.28 billion) in the second quarter of this year, according to the latest statistics bulletin of the Capital Market Administration, and it remains difficult to get an answer to the question: Will the scenario from 2022 repeat itself in 2023? Or will global economic conditions unfold as expected and will the markets emerge from the crisis that was the worst of the current year?

Nafta is the biggest player in the market

Sami Al Hamada, Director of Middle East Business for Global Financial Management Corporation, confirms that interest rate hikes by central banks in 2022 have put pressure on investor sentiment in financial markets, while oil has played the biggest role in their growing concerns. on the global economic outlook, Brent crude fell from a high of $140 a barrel, erasing almost all of its gains in 2022, to $79.14, and therefore – as it always has been – the level of oil prices will be decisive in determining expectations in general, for the economy and company earnings, which affect the markets. Money.

He added that the TASI’s fall of around 10 percent, despite its severity, was still superior to the MSCS Emerging Markets Index, which fell 22 percent, with Saudi Arabia on track to register the fastest growth among G20 economies during the current year, supported by the value of oil exports, which exceeded one trillion riyals ($265.8 billion), during the first 10 months of the year, recording a 75 percent increase compared to the same period in 2021, due to rising crude prices oil and growing demand from China.

Lack of liquidity in financial markets

Regarding the availability of liquidity, Mohsen Al-Muhanna, financial advisor of the “Financial Trust Group”, explains that the stock markets globally suffer from a lack of liquidity due to high interest rates, in light of the continuous decline in daily trading, which almost touches the lowest figures of the year, and the Saudi market did not deviate from that, which is why the Capital Market Administration approved the regulation submitted by the company “Tadawul” in early December this year to regulate the procedures of the “market maker”, whose presence aims to ensure the provision of liquidity and increase the efficiency of pricing in transactions, and among the conditions is that he is a member of The Saudi Market (Tadawul), and is obliged to ensure buy and sell orders continuously during the entire period of the trading session, where he receives incentives, including a reduced commission for trading, and the number of “market makers” in “TASA” is 30 brokers, and six brokers in the financial derivatives market. And “Tadawul” continuously monitors their commitment to their role. Indicating that the role of “market maker” is still in its formation phase. Some believe that he has not reached the maturity to effectively practice his trading role.

IPOs on the main and “parallel” markets

Al-Muhanna believes that subscriptions cast a shadow on the market, which is a double-edged sword, as it adds liquidity to the size of the market and also affects the liquidity of day trading, especially in the event of a downturn. During the past 10 months, 17 subscriptions were recorded on the main market, with a total revenue of 37 billion rials ($9.84 billion), while on the “parallel” market there was an offer of 40 companies, of which 12 companies were directly listed, and 28 companies are registered with qualified investors.

He pointed out that if the main market fell by about 10 percent, then “Nomu” fell by 28 percent this year and is moving towards recording the biggest annual losses since the establishment of the market in 2017, and “Al Rayan Advanced Industries” company canceled the offer from 20 percent of its capital, equivalent to two million shares at a price of 72 riyals ($19.14), while Al Ramz Real Estate canceled an offer for 10 percent of its capital, or the equivalent of 3.3 million shares, at a price ranging between 61 and 67 riyals ($16.22-17.81). The reason was that the subscription was not covered due to the withdrawal of some. As a result of the increase in the number of cancellations, investors feared that the negative performance of the market would continue in the coming period, especially since many stocks that were finally listed were trading below the subscription price.