Cheap Stocks and Market Reforms Draw Foreign Investors to #SaudiArabia - Bloomberg

Cheap Stocks and Market Reforms Draw Foreign Investors to Saudi Arabia - Bloomberg

A rush of reforms is making it easier for foreigners to invest in Saudi Arabia, boosting confidence among investors that the country’s stock market will one day compete with global rivals even as equities currently underperform and trading volumes decline.

Announced over a single week in July, a series of policy changes will allow residents of Gulf Cooperation Council countries to more freely trade Saudi stocks, give foreign firms the option of launching depositary receipts and ease rules for funds and asset managers dealing in equities.

The kingdom has also approved a law that will make it easier for foreigners to own property.

Taken together, the reforms are the latest evidence that Saudi Arabia is committed to becoming a global business hub despite headwinds including weaker oil prices, according to investors at firms including Morgan Stanley and AllianceBernstein.

“Saudi wants to be a global financial player like the UAE and Singapore and is trying to adopt best global practices to increase foreign flows and access to capital markets,” said Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management. “All of these reforms signal a conscious transition from an oil dependent economy to a global investment destination.”

Developing more robust and sophisticated markets is a critical part of de facto ruler Mohammed bin Salman’s Vision 2030 program. Saudi Arabia wants foreign investors to help drive economic activity and support new industries as the country attempts to break its reliance on oil revenue.

To help attract outside money, Saudi has promoted a more diverse range of initial public offerings, increased efforts to lure high-frequency trading firms and lowered some of the barriers to entry for foreigners. One sign of progress: foreigners based outside the GCC countries accounted for a record 35% of equities buying in the second quarter, according to Bloomberg Intelligence.

Yet even as the kingdom spends trillions of dollars to overhaul the economy, it faces short-term challenges. A recent selloff in Saudi stocks left them with the lowest valuation in almost nine years versus global markets. The benchmark Tadawul index fell to a 32% discount to the MSCI ACWI Index in July, based on a price-estimated earnings ratio, the cheapest relative valuation since late 2016.

Average daily trading value meanwhile declined to a more than two-year low of $1.25 billion in July as local buying dried up, BI analysts Deniz Besiroglu and Nicholas Phillips said. It will likely take time for recent reforms to translate into changes in trading activity.

Weaker oil prices are making attracting foreign investment a priority. The global benchmark, Brent, is trading below $70 as the Organization of the Petroleum Exporting Countries and its allies increase supply, and few forecasters are predicting a rebound any time soon.

The kingdom has already cut budgets for some projects and said it will keep a lid on spending. That may be helping to lure foreign investors who see the country’s decisions as pragmatic. Funds buying Saudi equities are witnessing a streak of inflows this year, taking the nation to the fourth highest spot in fund allocations in the EMEA region, according to EPFR data.

A further drawdown in equities valuations may also help attract foreign investors, according to Sammy Suzuki, head of emerging market equities at AllianceBernstein. Foreign investor activity began picking up in May and June, he added.

“We are keeping a keen eye on all reforms, small or large, that might increase liquidity in the market and increase the number of investible companies,” said Suzuki.

Opening further to GCC residents was a “natural next step” given strong economic, social and regulatory ties within the region, the Capital Market Authority said in a statement to Bloomberg. It’s studying the feasibility of opening to all investors.

Residents of GCC nations can now open investment accounts and trade stocks directly on the main market for the first time. And if they move abroad, they’ll be allowed to continue trading from outside the region.

The introduction of Saudi depositary receipts, which will allow a foreign company to issue a local receipt that tracks their global shares in Saudi riyals, will offer a test of appetite among foreign firms.

The Saudi Exchange is accepting applications from depositary banks and potential issuers and told Bloomberg it expects the approval process and timeline for listings to be similar to dual listings or initial public offerings. Prior to launching SDRs, it had received inquiries from potential issuers in Europe, the US and Asia, it said.

Still, the most important factor may be time.

“Reforms take a long time to bear fruit. In the short to medium term, economic growth, that is so far dependent on oil prices, will determine market performance,” Morgan Stanley’s Kandhari said.

Oil Market: The Bullish Case for Crude Is Real, But Far Away - Bloomberg

Oil Market: The Bullish Case for Crude Is Real, But Far Away - Bloomberg

When a bet goes wrong, investors are often tempted to hold on, convincing themselves that their short-term trade was always meant to be a long-term position. The self-delusion is easiest in commodity markets: Their cyclical nature means that, inevitably, what’s high will eventually be low and vice versa. It just takes patience — and the stomach to withstand losses for as long as it takes.

With oil benchmarks down almost 20% over the last two years, upbeat investors are, out of necessity, waiting. The meme “We remain bullish” even trends on social media, defying the fact that almost every Wall Street bank remains resolutely bearish for 2026. For what it’s worth, I’m similarly bearish short-term. But that doesn’t mean oil prices — and the equities associated with the energy market — won’t eventually rebound.

Ali Al-Naimi, who was Saudi oil minister for more than 20 years, once summarized his working life as riding a price rollercoaster. “During my seven decades in the industry, I've seen oil at under $2 a barrel and $147, and much volatility in between,” he said in 2016 just before retiring. His wisdom remains relevant today.

But waiting for a recovery will require a ton of forbearance, and incur significant opportunity costs. That’s particularly true for anyone who bought at $100-plus a barrel, given that crude today hovers around $65. It's even worse on the equities side; small- and medium-sized oil companies traded in 2022 and 2023 at unsustainable multiples, and many have since fallen anywhere between 20% and 50%.

Recovering such drawdowns won’t be easy. The last big downturn is illustrative of the wilderness that lays ahead for the bulls: Brent crude lost its triple-digit valuation on Sept. 9, 2014, and it didn’t recover that level until Feb. 28, 2022. That’s a long — and expensive — seven years, five months and 19 days before being able to claim victory.

One can paint a mildly bullish picture for crude prices, probably as early as 2027 and even more so in 2028-2029, on the back of two main factors. First, despite a slowdown, current global oil demand growth remains healthy, not far from the 20-year long-term average of increasing by about 1.1 million barrels a day. Barring a global recession, we’ve probably seen the bottom of demand growth. Second, low prevailing prices will dent investment and thus future non-OPEC+ output. The US shale industry, more sensitive to cheap oil and quicker to react to low prices, is already flashing signs of plateauing; top American shale producer Diamondback Energy Inc. said earlier this week that US oil output faced an “inevitable” drop after companies slashed drilling.

The oil supply-and-demand forecasts for 2026 and 2027 suggest that in recent weeks barrel counters have started to shave their estimates for global production two years down the road. That’s an important sign that an inflection point would come. Additionally, as OPEC+ countries hike output, what’s left as spare capacity gets exhausted, typically pushing up prices. Finally, global crude inventories were low before the glut hit the market, limiting stockpiling.

Add to the bullish cocktail other potential unknowns — a hurricane damaging US Gulf of Mexico oil output, a cold winter boosting demand or even war erupting in an oil-producing nation. On top, there’s Donald Trump: All that stands between an oil market battling a significant glut and one weathering a major deficit is a presidential social-media missive announcing real oil sanctions against Iran and Russia. Thus, the bulls may get it right if the White House helps. Sadly for them, Trump has made clear that he dislikes high oil prices, even though he slapped an additional 25% tariff on Indian exports on Wednesday as a punishment for the country continuing to purchase Russian oil.

Still, put all of this together, and a bet that oil will trade higher in 18-24 months — say above $75-$80 a barrel — has a decent chance of coming good. What about $100 a barrel? Highly unlikely. What about record prices above $150? Never say never — but no.

There’s a worrisome catch: Some of the bullish catalysts require even cheaper oil first. To see non-OPEC+ production growth stopping, or even declining, the industry needs a painful period of $50-to-$60 prices that convinces every board of directors to slash investment. To see the cartel exhausting its current spare production capacity, OPEC+ needs first to pump more, driving prices lower. In summary: To be bullish on the medium-term, one has to be bearish over the short-term.

There’re other obstacles. Oil demand is still healthy, but its rate of growth is on a structural downward trajectory because of shifts in the structure of China’s economy, plus more efficient gasoline cars and electric vehicles hitting the streets. The longer the bullish cycle takes to emerge, the greater the risk that demand growth won’t be sufficient to provide an uplift to prices. Non-OPEC+ production may surprise to the upside too, particularly outside the US shale industry. Projects in Guyana, Brazil, Canada, Uganda, Norway and China will add extra barrels over the next couple of years, no matter what prices do. Non-OPEC+ output growth may slow, but won’t collapse.

So, while one can get enthusiastic about the prospects for oil a couple of years down the road, taking a long position in the Brent December 2027 futures contract (to name a popular bet) requires quite a willingness to stomach potential paper losses in between. For now, everything points to lower prices in the next few months, particularly after the seasonal demand uplift during the Northern hemisphere’s summer fades. Over time, the current low prices will create the foundations for the next cyclical upturn. But that’s far, far away.

#AbuDhabi, #Dubai #UAE Explore Multibillion-Dollar IPO of Aluminum Firm EGA - Bloomberg

Abu Dhabi, Dubai Explore Multibillion-Dollar IPO of Aluminum Firm EGA - Bloomberg

Emirates Global Aluminium PJSC is assessing the feasibility of an initial public offering, according to people familiar with the matter, potentially reviving plans for a deal that could rank among the largest-ever share sales in the Middle East.

The region’s biggest aluminum producer has sent requests for proposals to banks as it explores a potential listing that could raise several billion dollars, the people said, asking not to be identified as the information is private. Rothschild & Co. is advising the firm, two of the people said.

EGA, based in the United Arab Emirates and jointly owned by Abu Dhabi’s Mubadala Investment Co. and the Investment Corporation of Dubai, has been weighing an IPO for nearly a decade. It operates aluminum plants in both cities.

In a 2023 interview with Bloomberg News, Mubadala Chief Executive Officer Khaldoon Al Mubarak said EGA could sell shares to the public “maybe this year.” That came two years after Bloomberg reported that the firm was poised to appoint banks including Citigroup Inc., Goldman Sachs Group Inc. and JPMorgan Chase & Co. on a deal that could have valued the company at over $15 billion. An earlier attempt, in 2018, was also shelved.

The choice of the listing venue will be a key question for the deal, people familiar with the matter said. Abu Dhabi and Dubai have both been pushing state-backed firms to list on their local bourses as part of an effort to deepen capital markets and monetize strategic assets. That initiative has helped transform the UAE into one of the world’s most active IPO markets in recent years.

Discussions are ongoing and there’s no certainty that EGA’s shareholders will proceed with the offering, the people said.

EGA said no decision has been made on a potential IPO, which remains at the discretion of its shareholders. In a statement, the company said it is “exploring potential requirements to ensure readiness, should the shareholders choose to proceed with an IPO in the future.”

Representatives for Mubadala and Rothschild declined to comment. The Dubai Media Office did not respond to a request for comment on ICD’s plans.

Any share sale for EGA will come at a time when it’s facing headwinds including higher tariffs on aluminum imports to the US. The firm completed its first acquisition in America last year, gaining access to some supply that avoids tariffs in one of the its largest markets.

EGA is also planning to begin construction of a $4 billion plant in Oklahoma next year. That announcement coincided with President Donald Trump’s visit to the Gulf, where he sought trillions of dollars in investment from the region.

More recently, the firm suffered a setback in Africa, after Guinea transferred a bauxite mining lease from its local unit to a new state-owned entity last week.

Major Gulf shares fall on corporate earnings; Egypt extends rally | Reuters

Major Gulf shares fall on corporate earnings; Egypt extends rally | Reuters

Most major stock markets in the Gulf ended lower on Thursday, as investors weighed mixed earnings reports and the impact of higher U.S. import tariffs on a dozen of trading partners that are expected to weigh on global growth.

U.S. President Donald Trump's higher tariffs kicked in on Thursday, and he also said the United States will impose a tariff of about 100% on imports of semiconductors but with some exemptions.

Dubai's benchmark stock index (.DFMGI), opens new tab slipped 0.4%, weighed down by declines in real estate, consumer staples and financial shares. Emaar Properties (EMAR.DU), opens new tab fell 1%, while its unit Emaar Development (EMAARDEV.DU), opens new tab dropped 2.3%.

Emaar Properties, Dubai's largest property developer, posted on Wednesday a 39.7% year-on-year rise in second-quarter net profit attributable to shareholders, but its profit dipped 9% from the previous three-month period.

Saudi Arabia's benchmark stock index (.TASI), opens new tab fell 0.2%, with most constituents posting losses. Saudi Research and Media (4210.SE), opens new tab dropped 3%, after the media firm reported a second-quarter net loss, compared to net profit a year earlier.

MOBI Industry (9517.SE), opens new tab lost 7% after the fertilizer maker reported a 49.5% year-on-year decline in quarterly net profit.

The Abu Dhabi benchmark index (.FTFADGI), opens new tab eased 0.1%, pressured by a 0.5% loss in conglomerate International Holding (IHC.AD), opens new tab and a 2.9% drop in Agthia Group (AGTHIA.AD), opens new tab, which reported a net loss for the second quarter. In contrast, Burjeel Holding (BURJEEL.AD), opens new tab surged 4.8%, after posting a more than twofold jump in net profit.

The Qatari benchmark index (.QSI), opens new tab gained for a fifth day and rose 0.3% to 11,364, its highest level in more than 2-1/2 years, with most stocks in positive territory.

Qatar National Bank (QNBK.QA), opens new tab, the region's largest lender, added 1% and Qatar Aluminum Manufacturing (QAMC.QA), opens new tab rose 1.7%, after reporting a 44% increase in half-year net profit.

Outside the Gulf, Egypt's blue-chip index (.EGX30), opens new tab extended its rally to a sixth session, rising 0.9% to a new all-time high at 35,809 with most stocks in the green.

E-Finance (EFIH.CA), opens new tab jumped 6.3% and Talaat Moustafa Group (TMGH.CA), opens new tab advanced 1.2%.