Saudi stocks are outperforming virtually all other markets this year and gains may not be over yet, according to analysts and fund managers.
Up 22% this year in dollar terms, the benchmark Tadawul All Share Index is the sixth best-performing gauge globally in 2022. Rich in banks and energy stocks, the gauge has been supported by soaring oil prices and rising interest rates.
“The structure of the Saudi equity markets, dominated by banks and energy, position it well to tackle the double whammy of rising interest rates and inflation,” according to a note from Al Rajhi Capital. A survey of 51 fund managers conducted by the firm showed investors also expect Saudi stocks to outperform global equity markets this year.
Foreign inflows have picked up in recent weeks, helping support Saudi shares, even though they trade at a significant premium to emerging-market peers. Morgan Stanley strategists remain overweight the kingdom’s stocks, citing a growing list of tailwinds, from reform measures to “extraordinary” inflows and low funds positioning.
“Amid higher oil prices, Saudi’s fiscal balance is likely moving to a sizable surplus,” a Morgan Stanley team including Saul Rans wrote in a note. “We see several ways this could be used to compensate households for global inflation. We expect any such measures to support Saudi equities’ outperformance further, especially given relatively low CPI.”
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