Tadawul seen bearish at onset of Ramadan, then gather steam
The Saudi stock market is expected to decline over the week before Ramadan, Jadwa Investment said Sunday "caused by a combination of investors selling shares to raise money to cover high spending during the month and other investors realizing gains in anticipation of a fall in share prices during Ramadan."
A further fall is seen in the first three weeks of Ramadan "probably the result of the same factors that cause the fall in the run-up to Ramadan in addition toinvestors paying less attention to the market, and therefore investing less, as the month progresses."
Tadawul All Share Index gained 0.04 percent to 6,525.34 points at close Sunday.
However, a revival in the final week of Ramadan is foreseen "to reflect investor buoyancy over the outlook for the post-holiday period."
The uptick will continue in the weeks following Eid Al-Fitr "likely to be due to an improvement in investor sentiment stimulated by the revival of trading and of broader activity within the economy following the lull during Ramadan," Jadwa noted.
The stock market performance during Ramadan 2010 perfectly fitted with these historical trends. The TASI declined during the first three weeks of the month then picked up in the final week. It posted a notable rise in the first week after Eid Al-Fitr, in line with the seasonal norm, but then gradually fell back. The week before Ramadan was flat, it had fallen in the corresponding week in six of the ten previous years.
Performance by sector was also in line with the historical pattern.
Banks and telecoms both rose faster during Ramadan than on average. In the case of the former this is because Ramadan is the time of peak spending, which is often funded by borrowing. For telecoms, the influx of foreign pilgrims during Ramadan generates exceptional roaming revenues.
The underperformance of cement may be due to much lower sales, as far less construction can take place given shorter working days and fasting workers (this also affects the building and construction sector). The reason for the downturn in the insurance sector is unclear.
Banks and telecoms were among the three sectors that outperformed the 0.7 percent gain in the TASI over the course of Ramadan last year. The other was industrial investment, which is little impacted by Ramadan.
Of the remaining sectors that would logically be influenced by Ramadan, agriculture and food was up, which is to be expected during the time of peak food consumption. Retail and hotels were flat, even though Ramadan is a time of high consumer spending and peak hotel occupancy and room rates in Makkah and Madina. The seasonal trends would be repeated this Ramadan, Jadwa said.
While local retail investors continue to dominate stock market trading, the influence of the changes to life during Ramadan cannot fail to impact on share price movements. Whether the full seasonal pattern is maintained over future years will be influenced by the timing of school holidays. As Ramadan moves earlier in the year, it will soon be possible for Saudis to take their main summer vacations after Ramadan and before the schools restart, which would probably dampen the revival in the market that has generally occurred after Eid Al-Fitr.
One potential risk this Ramadan is the market reaction if the US fails to reach an agreement on extending its debt ceiling by Aug. 2, after which it would be unable to honor all its debts.
Concerns about Eurozone debt, which have recently pushed the TASI down recently despite encouraging second quarter results, should ease over the near terms following the agreement of another debt restructuring for Greece, it added. Yet, major moves in global markets would outweigh the impact of the seasonal pattern around Ramadan on the Saudi stock market, the report said