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Riyadh: Market performance in Saudi Arabia has been resilient amid the highest growth rate among G20 countries, continued efforts to diversify the economy and healthy inflows of foreign direct investment.

“Tadawul, by far the largest stock exchange in the Middle East, is looking to become a regional hub for cross-listing companies from other Gulf countries,” said Waleed Rasromani, Dubai and Riyadh M&A partner at Linklaters, a UK-based multinational law firm. .

Intense M&A activity coupled with a notable rise in IPOs has fueled the Saudi market and the momentum is expected to continue into 2023.

market growth

Saudi Arabia’s oil-led growth, non-oil diversification strategy and government framework have provided a solid foundation for its outstanding market performance.

Strong liquidity, local investor interest in Saudi stocks and pursuit of goals outlined in Vision 2030 also boosted the market.

“The IPO market in Saudi is expected to remain resilient and we expect the traction of IPOs to increase. There doesn’t seem to be a slowdown there,” said Ali Anwar, managing director and head of the Middle East practice at Alvarez & Marsal in Dubai.

A World Bank report released in November suggested that growth in the oil sector is driving the Saudi economy forward. As a result, the economy is expected to grow by 8.3% in 2022.

The IMF also noted that despite economic headwinds, Saudi Arabia will retain its position as the fastest-growing economy among the G20 nations.

As for legislative efforts, the Capital Markets Authority is working to make financial markets more attractive and transparent, and to increase investor awareness.

The CMA aims to increase institutional investor turnover to 41% of the total market turnover by FY2023.

The Kingdom’s financial sector development plan is another factor contributing to and supporting the growth of the Saudi market.

Excluding Saudi Aramco’s IPO, it aims to raise the stock market value as a percentage of GDP to 88% by 2030 from 66.5% in 2019. The closing price of Saudi Aramco on December 29 was SR32. 10.

Saudi government authorities have also spurred plans to privatize state-owned institutions through initial public offerings on the Saudi stock exchange.

Additionally, Saudi companies prefer to list locally rather than on more developed stock exchanges, possibly due to disclosure and corporate governance requirements.

Ibrahim Soumrany, partner at US-based global law firm White & Case, said: “The Saudi government’s push for privatization is driving more IPOs, and key sovereign funds and stakeholder engagement in capital markets is helping the Kingdom monetize its investments. .” in Dubai.

Soumrany added that more and more foreign companies are considering listing in Saudi Arabia. As a result, there will be increasing support for allowing dual listings in the coming years as more companies seek to list on the local market as well as in Saudi Arabia.

Strong performance

The kingdom is the best performing of all emerging markets since COVID-19, with Tadawul’s market capitalization rising 24% year-on-year to $3.19 trillion in the first quarter of 2022. The market capitalization on December 29 was nearly $2.63 trillion.

Earnings at Saudi-listed companies have grown 22% in each of the past three years through December. Additionally, their revenues are growing at 19% annually, indicating that these companies are growing their sales and profits.

Still, the owner of the kingdom’s exchange recently recorded a 23% drop in profits to 367 million riyals ($98 million) in the first nine months of 2022.

This decline was accompanied by a 7% decline in revenue to SAR 849 million, mainly due to a reduction in transaction and post-transaction services.

Higher salaries and employee-related benefits further weighed on profit in the January-September period, leading to a 14.7 percent year-on-year rise in operating expenses to 465 million riyals.

In early December, Saudi Arabia’s benchmark stock index fell 2.5 percent to its lowest level since April last year, with Raj Bank and Riyadh Bank down 4.9 percent and 4.7 percent, respectively.

Why? Since the riyal is pegged to the dollar and the central bank follows the Fed’s open market operations, the kingdom took a hit when the Fed pursued quantitative tightening to control inflation.

“Tadawul, by far the largest stock exchange in the Middle East, is seeking to become a regional hub for cross-listings of companies from other Gulf countries,” said Waleed Rasromani, Dubai and Riyadh M&A partner at law firm Linklaters.

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

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

Gulf markets have seen a bumper year for IPOs, benefiting from a war-driven surge in oil prices, with Saudi Arabia leading the way.

Saudi Arabia also led regional listing activity, despite global uncertainty and stock market volatility leading to a decline in IPOs in developed markets.

“The Saudi IPO market is expected to remain resilient and we expect IPO traction to increase. There does not appear to be a slowdown there,” said Ali Anwar, managing director and head of Middle East practice at Alvarez & Marsal Global Transaction Advisory Group in Dubai.

According to leading professional services firm Ernst & Young, Saudi Arabia had two IPOs in Tadawul and three IPOs in its parallel market, Nomu, in the third quarter, with combined proceeds of $490 million.

As for early next year, M&A activity in the Saudi market is expected to pick up amid heightened enthusiasm among companies to maximize shareholder wealth through strategic partnerships and business alliances, said a press release from Riyadh-based GIB Capital.

Khalid AlGhamdi, acting chief executive officer of GIB Capital, said: “We are seeing a fundamental maturity in the Saudi business community towards mergers and partnerships, which is very promising for our market.”

Anwar further emphasized that although 2023 may be down compared to the previous year, Saudi Arabia will retain a large fiscal buffer and advance its ambitious investment plan in line with Vision 2030.

future outlook

Asked about the outlook for 2023, Anwar told Arab News: “The Kingdom of Saudi Arabia is confident.” On the other hand, Ras Romani of the law firm Linklaters said, “I am optimistic about the coming year.”

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

A survey for the report showed that despite economic uncertainty and recession fears, some 60% of participants expect the market to remain in positive territory, with 23% expecting gains of more than 5%.

The report identified banking as the most favored sector, with participants expecting widening net interest margins and growth in corporate loans to drive bank profitability in the fourth quarter of 2022 and beyond.

The petrochemicals sector unexpectedly topped the list of most attractive sectors, as prices have weakened in the past due to demand concerns due to global instability.

“I expect the industrial sector to become active in Saudi Arabia as the push to localize supply chains continues, and renewable energy could also be a key interest as numerous projects are launched,” Rasromani noted.

He added: “I’m very excited about venture capital as this form of investment is becoming increasingly sophisticated in Saudi Arabia, and it has the potential to fundamentally change society and business for the better.”

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