Most sectors in Saudi Arabia expected to see positive activity in 2024: Analysts

Tadawul trading screen

Most sectors in Saudi Arabia will have a positive 2024, led by technology, utilities, transport, banks and real estate, analysts told Argaam.

The Saudi capital market had a “good performance” in 2023, despite external factors that affected the global financial markets, analysts said. The Kingdom’s equity market ended 2023 on a positive note, logging record annual growth, which will contribute to enhancing investor confidence for 2024.

They pointed out that it is important to keep an eye on the updates of the interest rate decisions issued by the US Federal Reserve in the coming period, in addition to their expectations about the movement of the market index.

Market performance in 2023

Bassam Al Obaid, a capital market expert, told Argaam that the Saudi capital market’s 2023 performance was “very good”, despite external factors that affected all markets. This included the interest rates hike to 5.5%, high inflation, the US capital market downturn and the bankruptcy of some banks and financial institutions, as well as the decline in China’s growth and weaker demand, with oil prices tumbling to the $70/barrel level.

Bassam Al Obaid, a capital market expert

He pointed to a number of external and internal factors that contributed to the consolidation of the market and its return to positivity. This included improved global markets, some of which achieved historical highs while others neared their highest levels. This is in addition to the pullback in the US dollar from the highest peak achieved during the year.

Al Obaid added that external factors contributed to the improvement of investors' risk appetite and the return of liquidity. This was due to market expectations that monetary tightening from the US central bank will soon end, as well as forecasts that interest rate cuts will begin gradually during the first half of 2024.

On internal factors, he noted that the continuation of the Saudi government spending on projects and infrastructure has strengthened the economy as well as bolstered companies and the local private sector. This is in addition to supporting the continued flow of foreign liquidity, which has a direct impact on the economy and the local market. Meanwhile, the market has arrived at historical and psychological support levels of 10,000 points, which contributed to its rebound by more than 2,000 points from March 2023 until the end of the year.

On the other hand, Abdullah Al Jabali, an economic writer, said the Saudi market was able to close at the highest annual level at the end of December 2023, thus compensating for losses from mid-July until the end of the year. Closing the year on a positive note underpinned investor sentiment for 2024, he further stated.

Al Jabali pointed out that the Saudi market was greatly affected by the announcements of negative results of leading, revenue-generating companies, including petrochemicals and cement firms. However, the banking sector was the top performer, driving market growth.

He predicted that factors that impacted the market in 2023, such as interest rates, will remain challenging in 2024, especially since many analysts do not expect a rate cut before Q3 2024.

Meanwhile, CEO of the Middle East and North Africa at BDSwiss Daniel Takieddine commented that overall, the Saudi market performed positively last year, but has seen periods of peaks and troughs. However, the market stabilized in 2023 when compared to 2022, reflecting a strong baseline for further gains in 2024.

He explained that the market benefited from the strength of the local non-oil sector, as investors reacted to developments and speculations about oil markets, in addition to the decision to cut Saudi crude production and its potential impact on prices and the local economy. Moreover, the market was affected by the change in perception about the direction of US monetary policy, as prospects shifted from higher interest rates for a longer period to lower interest rates, which led to increased risk appetite.

Sectors expected to witness significant activity

Al Obaid anticipates the first quarter of 2024, in general, to be a continuation of the rising wave that the market is currently going through. It is difficult to predict the performance for the rest of the year for some reasons, but the market remains positive in the long term.

He indicated that among the key sectors that will witness activity in 2024 are those related to technology and utilities, followed by transportation, then banking and real estate, adding that most sectors will be positively affected in general.

Among the main factors that will impact global markets, in general and in turn the local market, is the specter of recession that may emerge during the second quarter of 2024, as the aftermath of interest-rate hikes often lead to delayed fallouts that appear as a result. However, it is important to monitor this over the coming period, he said.

Meanwhile, Al Jabali stated that interest rates are among the major news that should be followed up in the market. This is in addition to geopolitical events, which may cast a negative shadow on the market this year.

Takieddine said the Saudi Exchange (Tadawul) may extend its gains this year, thanks to the improvement in the sentiment of local and international investors. This is because several sectors such as technology, retailing, and real estate are bound to benefit from the expected decline in financing costs, with the lowering of interest rates by global central banks this year.

The energy sector may see gains if oil prices rebound. Furthermore, the banking sector may leverage from robust economic activity, although lower interest rates may put some pressure on margins in the long term, he added.

The CEO also stated that Tadawul, like other regional markets, may be affected by geopolitical tensions in the region with the continued risk of their eruption. He indicated that these tensions could impact oil prices, fueling more uncertainty, which could affect the Saudi economy. Meanwhile, monetary policy could remain a key point of focus for investors as they monitor the pace of interest rate cuts.

Technical forecasts

Ali Al-Zahrani, a financial analyst and CEO of Assets Bridges Co.

Ali Al-Zahrani, a financial analyst and CEO of Assets Bridges Co., said the TASI index is likely show positive movement in Q1 2024, targeting a level between 12,500 to 13,360 points. This shall be followed by a technical correction to levels less than 11,200 points.

The dynamic range of the index is projected to be within the expected levels of 10,160 points and up to 14,100 points, he added.

He indicated that the largest level with the least probability may be the fluctuation between the 9,060 and 15,200 points range, driven by the improved results of companies’ businesses, especially in the banking and basic materials sectors. This is alongside the elevated demand in the cement sector, paired with transformations in some sectors such as health and insurance during 2024.

Al-Zahrani also pointed out that estimates suggest that the general market index aims to enter the selling range of 13,790-14,800 points, after the end of the session dated Jan. 1, at an increase of 12,037 points.

On the other hand, Al Obaid explained that the market targets the 13,000 points range in the medium term, if no external influences occur.

He expects the market to achieve a new peak above the 14,000 points level, indicating that 11,200 points falls within the scope of interest. It represents the fortress that must remain steadfast to maintain the upward momentum and optimistic outlook, Al Obaid elaborated.

Al Jabali added that market stability above the 12,000 points level will drive a recovery to 13,000 points again.

He emphasized the importance of focusing on companies that have not posted significant increases yet, expecting the petrochemical sector to perform better, especially amid price improvements in global markets.

Al Jabali noted that the cement sector will see increased demand due to the start of major government projects. This makes market stability above 12,000 points crucial, particularly in early 2024, to confirm its upward trajectory.

Takieddine underlined that Tadawul has been logging gains since late October 2023 and could keep recovering after exceeding its 2023 peak. However, the main index might face resistance near 2022's key levels and could see price adjustments.

He stated that the market could reach and potentially exceed its 2022 peak if favorable conditions are maintained.