Badr Al-Balawi, a member of the Saudi Economic Association, confirmed that there are leading sectors in the Saudi capital market trading at discount rates of up to 10% of the current value of a company’s share price for various reasons, noting that the fair value of a SABIC share ranges from 130 to 135 riyals based on previous financial statements, and that investors had been trading the stock at these discount rates throughout the period.
Al-Balawi explained that several factors contributed to the recent gains in the Saudi capital market, including the Cabinet’s decision to allow foreign financial institutions to buy and sell shares listed on the Saudi stock market, and the authorization of the Capital Market Authority to select the appropriate time for their entry, in accordance with the rules it establishes in this regard. He noted that this decision is one of the positive developments the Saudi market has been awaiting since 2006.
He added: Trading in the traditional banking sector had been occurring at a discount of 15% due to the nature of Saudi investors, who had not been trading for a long time, and the lack of investors in the sector, The Cabinet’s announcement opening the door for foreign financial institutions to buy and sell shares listed on the Saudi stock market has helped create the real opportunities that foreign institutions are seeking, enabling them to invest in conventional banks at low price-to-earnings ratios, noting that Samba Bank was trading at a P/E ratio of approximately 9 prior to the announcement, which generated good returns for the bank, as well as for SABB and «Saudi Dutch Bank,» as the announcement contributed to rising prices and a market adjustment driven by Saudi investors« realization that foreign financial institutions would invest in these major companies.
Al-Balawi said: »Another factor contributing to the gains is that the Saudi capital market has been dominated by optimism since 2012, and the market’s positive sentiment has been reacting to positive news in recent periods, which led to rising prices; consequently, the market witnessed a broad and rapid rise over the course of nine trading sessions. He noted that another factor was the 26% increase in profits for companies listed on the Saudi stock market in the second quarter compared to the same quarter in 2013.
