JEDDAH — Saudi Arabia had led its first ever military intervention into Yemen, dubbed “Decisive Storm”. A collaborative airborne military action against the Houthi revolt in Yemen to restore power to Hadi's regime. The sudden decision to take action was announced on March 25 which caught market investors off-guard. Additionally, the first quarter corporate earnings for Saudi listed companies revealed significant declines for numerous companies. The decline of oil prices was an indication for lower revenues and investors priced-in the declines prior to company announcements. As a result, Tadawul's main index bottomed at 8'589.7 in beginning of last month which only translates to a 3.1% YTD gain, the National Commercial Bank said in its “Saudi Economic Review” for the month of April 2015. However, following the aforementioned, the market rebounded as operation decisive storm ended on the 21st of April and Saudi officials declaring it successful by achieving key objectives in weakening Houthi threats, the report noted. The subsequent operation, Restoring Hope, had been announced which aimed to guide the country towards a stable future. Furthermore, the timeframe for announcing the final regulations for Qualified Financial Institutions (QFI) to enter the marketwas announced mid-month. Accordingly, Tadawul had gained 12.0% by the end of April to reach 9'834.49. On a sectoral basis, the real estate sector recorded the largest growth YTD with a 40.7% gain by the end of last month, followed by the industrial investment and transport sectors which posted 39.2% and 35.0%, respectively, for the same period. The only sector remaining in the negative is the telecommunications which is pressured by Mobily's unfolding of their accounting discrepancies. The level of activity, measured by the average daily traded volumes, fluctuated from as low as SAR5.3 billion to a peak of SAR14.9 billion to equate to a monthly average of SAR9.0 billion. Despite the decline of market activity by 3.8% M/M, market capitalization increased from SAR1.90 trillion in March to SAR2.2 trillion by the end of April, gaining 13.8% on a monthly basis. Additionally, the price-to-earnings (P/E) ratio had dropped to 15.2 by the end of the first quarter which prompted investors to grasp lucrative valuations. Last month, the P/E ratio increased to 18.11 with the usual majority of transactions being made by Saudi individuals. The speculative nature of the market will be addressed with the commencement of trading by QFIs mid-June. The primary market for 2015 was not expected to surpass 2014's activity, especially as Tadawul introduced the second largest initial public offering (IPO) globally, the National Commercial Bank. During April, the first IPO for 2015 offered 15 million shares at a price of SAR30, representing 30% of Middle East Paper Company. The second IPO was for Saudi Company for Hardware which offered 7.2 million shares at SAR70, also representing 30% of total company shares. The appetite for primary issuances remains strong in the local market as both IPOs were oversubscribed by 473% and 620%, respectively. “We expect more issuances in the second half of 2015 as IPOs continue to attract capital, NCB said. However, Adel Al Ghamdi, Tadawul's CEO, had announced that institutional allocations are likely to increase in the future to further add depth and stability to the market. — SG
