Stability of the Saudi Stock Market Due to Lack of Incentives and Interest Rate Anticipation

SadaNews - The Saudi stock market began today’s trading with little change from Thursday’s close, as traders awaited new incentives that would help the index escape the downward wave it witnessed in recent weeks, following a financial results season that revealed a decline in overall profits for companies.

The "TASI" index stabilized at 10,838 points in the early minutes of Sunday’s session, with major stocks such as "Al Rajhi Bank," "ACWA Power," and "National Commercial Bank" recording declines, while shares of "Aramco" and "SABIC" rose. Additionally, shares of some listed companies benefited from announcements made before the session began.

Financial analyst Asem Mansour believes that the increases seen in the market during the last sessions of the previous week are "cautious and temporary," while investors are awaiting global developments that may impact the market’s trajectory, especially after the "financial results season ended without momentum."

Mansour expected continued selling pressures in the market to persist "temporarily, but on the other hand, traders will focus on stocks that are trading below their book values, which increases opportunities in the market, especially in the sectors of telecommunications, healthcare, and financial technology."

Interest Rates

A number of analysts agree that the Saudi market is anticipating a monetary policy decision from the Federal Reserve in September, with widespread expectations that the U.S. central bank will begin to follow a downward path concerning interest rates. The annual economic policy seminar organized by the "Fed" will begin next Thursday evening, where its president will present the new monetary policy framework and the strategy that will be adopted to achieve its goals related to inflation and employment.

Mansour stated that "banks accounted for nearly 60% of the profits of listed companies in the Saudi market during the second quarter, which increases the traders' anticipation of interest rate developments. A reduction would increase financing volumes and demand for loans, in addition to banks' tendency to enhance profits from other sources, such as financing and investment in financial derivatives."

The monetary policy of the Saudi central bank reflects the movements of the Federal Reserve due to the pegging of the riyal to the dollar.

News Boosting Company Stocks

Shares of "Salama" and "Inaya" cooperative insurance rose by about 1% at the beginning of trading, after announcing the signing of a binding agreement for a merger through a share swap, in a deal that will result in the cancellation of the listing of "Inaya" shares in the market.

The pace of mergers and acquisitions in the Saudi insurance sector is increasing, with expectations from S&P Global for more deals throughout the current year.

Ghassan Al-Dukheer, CEO of "Mayar Financial", points out that the intense competition in the Saudi insurance market has led to a decline in profit margins amid rising regulatory requirements for companies’ financial adequacy rates.

He added: "I believe we will see many merger and acquisition deals in this sector specifically. The two companies were incurring losses, so the merger was inevitable, and perhaps shareholders will gain after merging the two companies into one entity."

The share of "Arabian Drilling" also rose by nearly 1% after the company announced the extension of contracts for 11 land drilling rigs with "SLB."

As for "Umm Al-Qura for Development and Construction," the developer of the "Makkah Gateway" project, its share rose by 1.5% after announcing the sale of a plot of land worth over 76.5 million riyals.