Will the Saudi stock market boom continue?

Bolstered by a surging economy, initial public offerings, new listings and a fast developing capital market, the Saudi stock market is growing at an unprecedented rate. Last year the Tadawul All-Share Index more than doubled from 8,206 in 2004 to 16,712 points

The Saudi bourse reflects others in the region where momentum is still gathering pace from crude oil prices and revenues. Finance Minister Ibrahim Al-Assaf says the "excellent" performance of the stock market reflects the strength of the Saudi economy. It also manifests substantial investor confidence.

About one third of the Saudi population subscribed to the Yansab IPO at the end of 2005, Al-Assaf points out: "This is a record for Saudi Arabia and makes us optimistic about the stock market."

The market has been stimulated by the Saudi government's expanding privatisation programme and a step up in the number of companies seeking to raise finance through the capital market. Most initial public offerings have been well oversubscribed some 10 or 12 times.

Technology boost

The Saudi Tadawul electronic trading system, introduced in October 2001, was among the first global stock markets to launch a fully electronic clearing and settlement system allowing immediate ownership transfers following the matching of buy and sell orders.

The high-tech market has been able to accommodate the huge expansion in the Tadawul's business in recent times. Over the last year transactions rose from 13,319,523 to 46,607,951 while the value of shares traded increased at the same time from a total 1.8 billion riyals to 4.1 billion riyals.

High oil prices, substantial liquidity and a surging economy as well as self driven confidence are factors that continue to maintain a bull market and rapid development of the Saudi bourse. Investor confidence has also been boosted by the Kingdom's accession to the WTO and the huge reduction in public debt now down to less than 50 per cent of GDP.

State share issues

Major upcoming state divestments are likely to maintain investors' enthusiasm for buying shares at least in the medium term. The agenda includes the proposed privatisation of parts of Saudi Arabian Airlines and the sale of the General Organisation for Grain Silos and Flourmills as well as the state's shares in Samba Financial Group.

According to the governor of the Saudi Arabian Monetary Agency (central bank), Hamad Al-Sawari, the country's budget for 2006 and record budget surplus in 2005 will have a positive impact on the stock market through greater liquidity and investment in shares.

The Tadawul's market capitalisation of more than $500 billion already ranks the Saudi bourse the largest stock-market in the Middle East representing 47 per cent of the total capitalisation of Arab stock exchanges.

While there are fewer than 80 companies listed on the exchange at present experts believe the market has considerable potential to grow much bigger to eventually exceed that of South Korea and approach the size of India's stock market.