VOL. XLV
No 32
Saudi Share Index Rises 13.7% In First Half
2002
The share index of the Saudi stock
market grew 13.7% during the first half of 2002 despite falling 4.4% in June,
and market capitalization increased by 11.8% from SR274.5bn ($73.2bn) to
SR307.0bn ($81.9%) over the six month period according to a recent report
published by the Economics Department of Saudi Arabia’s National Commercial
Bank (NCB). The report attributed the strong gain to low interest rates,
expansion of the money supply (M1 – a narrow measure of the money supply -
increased by 8.6%), and the continuing positive business environment. Also
boosting the market was the listing of the newly-merged Saudi Electricity
Company (SEC) and the distribution of bonus shares. Furthermore, the offloading
of 30% of Saudi Telecommunications Company to Saudi nationals by the end of the
year is expected to give the market a further boost and enhance market depth.
Oil price stability and continued profitability of Saudi corporates
also seems to have dispelled fears of a market downturn.
Analyzing the performance of the
market by sector, the report noted that the share price for the electricity
sector as a whole which accounts for 13.2% of total market capitalization
showed the greatest gains of 28.3%. The banking sector which makes up almost
half of the market capitalization at SR147mn ($39.2mn) rose by the smallest
margin, along with the industrial sector, of 10%. Individual gainers in the
banking sector included Riyad Bank which saw its
share price rise 39.2%, and Bank al-Saudi al-Fransi
whose share price rose 26.2%. Share prices in cement stocks (10.8% of market
capitalization) were buoyed by a 15% rise in demand for cement in 2001 to
17.8mn tons which continued into 2002. Cement stocks as a whole rose 15.6% with
Tabuk Cement recording the highest rise of 53.8%
followed by a 30.7% gain for Saudi Cement and 26.3% for the price of the Arabian
Cement Company. The small services sector with 4.4% of
market capitalization performed well with prices up 19.9% and the best
performer al-Muwashi Mukurshi
up 56.1%. The tiny agricultural sector with 0.4% of market capitalization saw
prices up 20.7%. The share price of market heavyweight SABIC rose by 9.8% and
the price currently stands at 42 times its earnings, giving a return on equity
of 1.8% suggesting that the stocks are overvalued, said NCB.
Market activity so far this year
has been high compared to last year, with most activity concentrated in cement,
banking and industrial stocks. The value of shares traded rose 28% in 2001 from
2000 levels to reach SR83.6bn ($22.3bn). In the first six months of 2002 alone
the value of shares traded reached SR77.4bn ($20.6bn), almost 93% of turnover
for 2001. NCB expects turnover value for the whole of 2002 to exceed SR100bn
($26.7bn). Market depth, measured by market capitalization as a percentage of
nominal GDP has grown from 39% to 44% in the first half of 2002, reflecting
increased investor confidence and rising participation, according to the
report. The number of trade transactions rose by 73.1% to 531,774 while the
average value per transaction grew by 7.2% to SR145,503
($38,801) during the first half of 2002. The most active stocks traded in the
six months to end June were SABIC, Electricity Company (central), Saudi Cement
Company and al-Muwashi.
NCB also marked out two major
developments in the Saudi market in the first half of the year – the listing in
March of a new joint stock company, Zamil Industrial
Investment Company (ZIIC), and the merger of 10 electricity companies to form
the joint stock company SEC. ZIIC is a holding company which is engaged in
producing air conditioners, steel and glass. Established as a closed joint
stock company in 1998 by floating 40% of its shares to prominent Saudi and Gulf
investors, it has paid up capital of SR300mn ($80mn) with outstanding shares of
6mn at a par value of SR50 ($13.3) each. SEC was officially listed on the Saudi
stock market in May and saw an initial rise in its share price helping the
market to register a record high of 2,927 points on 20 May, but subsequently
the price fell away by more than five percent, helping to pull the down the
entire market in June. Before the merger, the combined capital of the 10
electricity companies stood at SR23.15bn ($6.2bn), which was raised to
SR38.29bn ($10.2bn) after the merger, an increase in paid up capital of 65.4%
financed by issuing a bonus share to existing shareholders, said NCB. The
company now has 765.8mn shares each worth SR50 ($13.3).
Copyright © 2002 Middle East
Economic Survey