Watheeqa Thematic Reports
You may be keen to know, in the final analysis, what we think of the Oil prices and how they are likely to pan-out, going forward. We re-cap our conclusion below.
Our concluding thoughts
Demand is expected to grow sedately and supply is not a constraint in the near future, in the absence of any major supply cut offs. Given the demand-supply dynamics, we expect the oil prices to stay high (above $65-70 a barrel) but do not expect to breach the $100 per barrel this year. In our view, a near term price band of $70-100 a barrel is the most likely range in 2010. However, from a longer term perspective, we expect the oil prices to stay below the $110-115 a barrel during 2011. Oil prices will have to rise more than 36% from $80.68 (as of 19th March 2010) to breach $110 a barrel. Currently, given the weak global macroeconomic landscape – we suspect if such a sharp rise would happen by the end of 2011.
An Overview - Sukuk Market – Saudi Arabia – 21-March-2010
The Kingdom of Saudi Arabia (KSA) is witnessing unprecedented economic growth stimulated by an aggressive public spending plan. This has led to huge financing requirements for both the government and private sectors. KSA also has one of the largest investor bases in the region with total assets under management exceeding $22.7 billion. The increasing requirement of long term financing and huge local investor appetite provides an excellent opportunity to develop a vibrant Islamic debt capital market (DCM) in the country.
Currently, the Saudi Sukuk market is small compared to other countries with comparable economic indicators. Though it has seen some large issues, the number of local currency issues listed on Tadawul is only five from two issuers (SABIC & SEC). The size of the total outstanding Sukuk is $8.1 billion. The need to have a well developed DCM was felt more than ever during the 2008 financial crisis. Bank lending to the private sector slumped to 3.6 per cent in July 2009, its lowest rate in more than six years (SAMBA, Economic Monitor, September 2009). Despite several interventions by the Saudi Monitory Agency (SAMA), banks became very reluctant in providing long term financing and increased their margins across the board. This left businesses with no other option except to abandon or reschedule their projects.
Further development of the Sukuk market in Saudi Arabia requires proactive involvement of the government authorities in addressing some of the key issues faced by the DCM issuers and investors.
Wealth Creation Studies – A Primer – Saudi Arabia
The primer on Wealth creation studies (Stock Universe) not only shows the wealth created/destroyed in absolute SAR terms but also captures the dividend inflows to the investors had they invested in end 2004 – accumulated the dividends – and liquidated the stock at the end of 2009. The study is for a five year period 2004-2009.
Some quick observations from the study
- Mid-caps have by and large created value.
- Contrary to perception – SABIC the market heavy weight though in absolute SAR has created value but viewed from a return perspective – IRR at 2% is disappointing.
- STC another blue-chip – Solid dividends but has destroyed value big time measured from a returns perspective.
Since this is a preliminary study with the objective of picking potential stocks – we have kept the study simple and hence assumed the dividend inflow to investors are not re-invested.
A footnote on IRR calculation is included at the end of the report.