In a year that saw emerging-market equities roar back to life, Saudi Arabia stocks were left far behind. Investors say don’t count on next year to be much different.
They see little reason to buy Saudi stocks, with oil prices in the doldrums and likely to keep falling next year with commodities trader Trafigura predicting a “super glut.” Citigroup Inc. analysts recommend investors underweight Saudi stocks and say the shares have “screened poorly” on earnings growth and momentum.
“Saudi stocks remain rather unappealing,” said Nenad Dinic, an EM equity strategist at Bank Julius Baer & Co. “First, the Saudi stock market is still closely tied to oil prices that could stay soft in 2026; second, it doesn’t get a boost from a weakening dollar as most other EM plays do.”
The dismal outlook comes on top of this year’s 11% selloff in the Tadawul All Share Index, the biggest drop since 2015. Earnings growth is also expected to be sluggish, with analysts predicting a 2% increase in profit next year, compared with 13% growth for the MSCI benchmark.
The world’s biggest oil producer is pressured by a 17% drop in Brent crude prices, which restrains public spending along with company earnings. Furthermore, its stocks have proved sensitive to unfavorable trends in the dollar this year, Citi analysts David Groman and Rahul Bajaj said.
“There is a lack of short term trigger with potential to drive Saudi equities higher,” said Sebastian Kahlfeld, a portfolio manager at DWS Investment GmbH. While valuations have become more attractive, the improvement isn’t “sufficient to drive a significant re-rating,” he said.
The Tadawul All Share Index currently trades around 15 times expected earnings, below its 10-year average of about 16 times but still higher than stocks in the benchmark EM index as well as regional hub Dubai.
Not everyone is bearish. Junaid Ansari, head of research and strategy at Kamco Investment Co., said the Saudi market remains “oversold with an overstated concern” about oil. He sees upside in bank shares amid higher lending and profits.
Amundi SA, Europe’s biggest asset manager, expects the Kingdom’s stocks to largely track the oil market over the near-term unless it delivers on plans to remove foreign ownership curbs on equities.
This “might provide a catalyst, especially for stocks with the biggest free float, such as financials,” said Marcin Fiejka, head of equities for central and eastern Europe, the Middle East and Africa at the firm. He doesn’t expect the changes to occur during the first half of 2026.
Saudi equities rallied in September after Bloomberg reported that the Kingdom may soon ease foreign limits. The gains faded after a regulator said that policymakers haven’t yet decided whether to eliminate the cap or lift it slowly in their 2026 review.
Adnan El-Araby, an investment manager at Barings Investment Services Ltd., also has an underweight stance on Saudi stocks, which he said have experienced earnings downgrades triggered by both macro and micro variables. “Less consistent” communication on when and how the country planned to open up its market hasn’t helped either, he said.
“We haven’t increased our exposure to Saudi ahead of 2026,” El-Araby said. “Our portfolio construction will be driven by the earnings outlook of specific companies.”
No comments:
Post a Comment