Breaking News
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

Aramco Needs More Than Bourse’s Invisible Hand to Buoy Its Stock

Stock Markets Oct 03, 2019 03:19AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Aramco Needs More Than Bourse’s Invisible Hand to Buoy Its Stock

(Bloomberg) -- Saudi Aramco’s shares, when they’re finally issued, may just prove to be havens in a volatile region. At least in the beginning.

Given the wide-spread speculation that government-related funds prop up the market when times are bad, some investors assume shares of Saudi Arabian Oil Co. wouldn’t be allowed to perform badly, especially given the hype around the initial public offering.

But even if they do, the support probably won’t be enough to keep global fund managers invested in Aramco’s stock for long, despite the company’s intrinsic ties to the kingdom and its finances.

“Short-term investors will find the downside protection, if there, comforting,” said Thea Jamison, a portfolio manager at Change Global Investment in Camas, Washington. In the long-run, investors would ask “bigger questions” about the company’s “fundamentals, its long-term growth outlook, the country’s macroeconomic environment and political risks.”

The Invisible Hand

Aramco’s offering shines a light on what some investors call “the invisible hand” that shields Saudi Arabia’s stock market during times of crisis. A year ago, there was speculation that funds with links to the government swooped in during the fallout of Jamal Khashoggi’s murder, and in 2017, when local billionaires were imprisoned at the Ritz-Carlton Hotel in Riyadh.

There was also sign of support after last month’s attacks on the kingdom’s oil facilities, with the main stock index recovering about half its losses within the first hour of trading.

Aramco “will be a showcase for the Tadawul,” said Ipek Ozkardeskaya, a senior market analyst at London Capital Group. “Therefore, the Saudis won’t refrain from giving the necessary support to Aramco shares. And they have the means to do so.”

The share sale, which has been in the making for at least three years, is the centerpiece of Crown Prince Mohammed bin Salman’s efforts to modernize the economy and diversify the nation’s revenue from oil. That drive includes turning Riyadh’s bourse into a gateway for foreign investment.

The offering is going ahead even though the strikes risk reducing Aramco’s valuation, which Prince Mohammed has put at over $2 trillion.

Based on his target, a 1% float would be valued at about $20 billion, or about 4% of the Saudi stock market. The state-run company plans to announce its intention to float around Oct. 20, and its listing could take place as early as November, according to people with knowledge of the matter.

No Guarantee

Judging by the performance of equities held by the Public Investment Fund, the biggest investor in the equities market, Saudi Arabia’s reliance on Aramco doesn’t necessarily mean that the so-called invisible hand will buoy the shares indefinitely.

Shares of Saudi Telecom Co., National Commercial Bank, Riyad Bank and Samba Financial Group have outpaced the benchmark index over the past two years, while those of Saudi Basic Industries Corp, Saudi Arabian Mining Co. and Almarai Co. have lagged. PIF’s holdings in these stocks vary from about 15% to 70%, according to data compiled by Bloomberg.

“Over the multi-month and multi-quarter time-frames relevant for institutional investors, government support for a share price cannot fight the prevailing wind,” said Hasnain Malik, the Dubai-based head of equity strategy at Tellimer.

Aramco Needs More Than Bourse’s Invisible Hand to Buoy Its Stock
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email