JEDDAH — With most sectors witnessing subdued business activity during Ramadan, the Saudi stock benchmark Tadawul All Share Index (TASI) will continue to see negative performance during the first week of the holy month, with flat performance recorded in the following two weeks, Jadwa Investment said Tuesday in its report on the “Seasonality in the Stock Market”. On average, Jadwa study said the TASI's weekly performance was down by 1.7 percent in the first week, 0.4 percent in the second week and 0.1 percent in the third week of Ramadan. The drop is a result of the same factors that cause the fall in the run-up to Ramadan, the study added. An additional contributory factor is investors paying less attention to the market, and therefore investing less, as the month progresses. So far, in 2015, the TASI has followed a similar pattern to historical trends. Latest available data shows that in the run up to Ramadan in 1436 (2015) the performance of the TASI was in line with the averages observed over 2000-14, except in two weeks before Ramadan, where the TASI was down. Traded volumes have been following a downward trend, as per historical patterns, despite a spike in four weeks before Ramadan. The report noted that three factors could potentially distort the historical trends. Firstly, the TASI has started accepting QFIs just before Ramadan and this unprecedented step will add a degree of unpredictability during the usually subdued trading period. Furthermore, toward the end of Ramadan, second quarter results for listed companies will start being published, which are likely to distort Ramadan trading patterns, similar to when quarterly result announcements coincided with Ramadan in 2009 and 2013. Lastly, the inability of Greece to reach an agreement with its creditors could weigh on international markets and subsequently also on the local investor sentiment. Jadwa noted though an expected revival in the final week of Ramadan. On average the last week saw weekly increases of 1.4 percent, even though the fourth trading week of Ramadan is typically shorter than the other weeks. A consistent pick up in the weeks following Eid Al-Fitr: There is a sharp rise, of 2.4 percent, in the first week after Eid Al-Fitr followed by a positive performance in the following two weeks as the TASI catches up with developments in global and local markets. This is largely due to an improvement in investor sentiment stimulated by the revival in trading and the pick-up in the broader economic activity following the lull during Ramadan. Between 2007-14 traded volumes averaged their lowest point during Ramadan. On a weekly basis, traded volumes follow a downward trend in advance of Ramadan and remain at comparably lower levels in the first three weeks of Ramadan, rising only in the last week. The value of traded shares increases sharply in the weeks following Eid Al-Fitr. On average, traded volumes increase by 75 percent in the fifth week of post-Eid trading, when compared to the first week of Ramadan. Volumes data follows similar patterns to traded volumes on both a monthly and weekly basis. Some sectors invariably benefit more than others during Ramadan. Looking at average sectorial performance between 2009-14, the three best performing sectors are hotels, agriculture and food, and retail. Average performance in the agriculture and food sector during Ramadan is 2.6 percent higher than just before the start of the holy month. This is unsurprising considering that Ramadan represents peak food consumption in Saudi Arabia and indeed across most of the Muslim world. The agriculture and food sector, however, is not the highest performing sector during Ramadan, with both hotel and retail registering a higher performance. The hotel and retail sectors, on average, were up 2.8 and 2.7 percent during Ramadan, respectively. The hotel sector benefits not only from increased domestic demand, but also from a large number of foreign pilgrims visiting the Kingdom over this period, pushing hotel occupancy and room rates to peak levels in Makkah and Madinah. High consumer spending at restaurants and retail stores, plus seasonal sales promotions, ensure the stronger performance of the retail sector too. In contrast, multi investment, insurance and building and construction are the three worst performing sectors during Ramadan. Since the TASI's performance as a whole dips during Ramadan, it is logical that companies engaged in multi-investment across the Saudi market will follow suit. The insurance sector frequently has a higher average monthly turnover throughout the year. This is because it is a sector in which speculative trading dominates as retail investors look to make quick profits. Subdued trading activity during Ramadan, as retail investors pay less attention to the market, therefore seems to adversely impact the insurance sector. The underperformance of building and construction is a result of far less construction taking place given shorter working days (this also affects the cement sector, which records the fourth worst performance during Ramadan). Looking at historical net SWAP agreements, Jadwa study can try to gain some understanding of how foreign investors tend to participate in the TASI during the Ramadan period. Data from 2009-14 shows that in every year, apart from 2011, net SWAP purchases increased on a month-on-month basis during Ramadan. With many Saudi retail investors selling off stocks to realize gains during Ramadan, the rise in net SWAP purchases could be a result of foreign investors taking the opportunity to consolidate their positions in the market, perhaps viewing the Ramadan period as good (re)entry point. There are, however, a number of drawbacks in the use of SWAP data in making reliable conclusions on foreign investor participation. Firstly, SWAP data is only available on a monthly basis, which is less accurate than the daily data made available for the TASI as a whole. Secondly, the monthly data is in Gregorian calendar format and not Hijri, which means Ramadan often crosses into two Gregorian months. Lastly, SWAP data only goes back till 2009, since when there has been a higher proportion of years distorted by events such as the QFI announcement (in 2014) and quarterly results (in 2013 and 2009), making it more difficult to map accurate trends. — SG
