Two main factors are maintaining high valuations for Saudi stocks

The steady rise in Saudi stocks over the past 18 months has prompted analysts at Morgan Stanley to admit they were wrong.

And financial market expert Abdullah Al-Rabadi said Morgan Stanley already was in delay in releasing its assessment of the Saudi market, and this indicates that foreign experts are not always in able to understand local markets and sources of strength in these markets.

Al-Rabadi explained in an interview with Al-Arabiya that many Saudi institutions and analysts have exaggerated with pessimism, especially in the second half of 2020 due to the repercussions of the crisis that hit the market.

He pointed out that the market has started to recover and companies have seen increased profits, a decline in provisions and a decrease in profitability multipliers to less than 20 for many companies, which makes the market today attractive for investment.

Al-Rabdi continued: “Previous MSCI index estimates have reduced positions in the Saudi market and expected a performance weak of the Saudi economy, but the opposite happened and the performance it was good thanks to the stimulus packages which brought positive effects, in addition to the improvement in expectations on the price of oil “.

Al-Rabadi stressed that there are two factors to keep the valuations of the Saudi market high by international institutions: the first factor is the low interest rates, which is an element shared by all financial markets in the world, and therefore accepts profitability multipliers at a rate of 25 to 35, and it has also become acceptable on the American markets, and also the Saudi market, which is trading with a profitability ratio of 29-30.

As for the second factor, the financial markets expert said it is represented by oil prices, which is an influential factor in the Saudi economy, indicating expectations that prices will continue to rise, which makes Saudi companies, in petrochemicals in particular, an attractive factor for investors.

Al-Rabadi believes that the financial sector also benefited during the year 2020 and continued to grow throughout the year in course, indicating the banks benefiting from the real estate finance sector, which supported the loan book, profits and profit margin.

“MSCI Saudi Arabia was the leading country with the best performance – in the world – quest’year and was also one of the best last year, ”Morgan Stanley analysts wrote in a note on Monday, and they updated their recommendation for Saudi stocks to overweight. And they declared in a report: “After being advised to lose weight from May 2020, it is clear that we were wrong in this matter “, according to” Bloomberg “and reviewed by” Al Arabiya.net”.

The Tadawul All-Share Index rose to its highest level since 2006 on the back of rising oil prices and increased retail activity.

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