Literature Review
Saudi Stock market companies have always been putting a lot of effort in analyzing the trends and stats of their companies since market analysis effects and suggest very much to the governing bodies. According to Blake (250), positive analysis may boost the inflow of the finances and a negative one can easily destroy an emerging company. This is the reason that each country has a governing body to make sure that these analyses are absolute and are not influenced by the powerful companies or people.
A potential change in buying and selling stock is always observed after the fresh analysis. Thus a growing company always wants to establish itself as an evolving organization and careful one. The few finding which influenced the behavior of the finance flow in company is listed below as per the importance of the analyst prediction (Blake, 120-200).
Onour (n.p.) explained that stock market of Saudi Arabia stayed informal till the 1980’s amidst the launch of a rapid development by the Saudi government. The year 1984 saw the transfer of control of the daily regulation of the Saudi market into the hands of SAMA (Saudi Arabia Monetary System). Additionally, the SSRC i.e. Saudi Sahre Registration Company was set up by the commercial banks which allows joint stock companies to register centrally and monitors all equity trades.
According to Onuor, “When looking at market development indicators of market capitalization ratio, the liquidity ratio, and the volatility indicator we realize that Saudi stock market is still fledging market that has yet to be characterized as a developed market” (Onuor, n.p). As being a greatly concentrated market, analysts’ forecasted that the market capitalization of three companies in the lead (from the 72 companies traded in the Saudi Stock market), make up 52% of the overall market capitalization. Speaking of liquidity indicator, analysts had predicted that just five companies would achieve a turn-over ratio of ≥ 5%.
It was also pictured Saudi market as being a volatile market, from period 2003 to 2004 where the general price index fluctuated from 2539 to 6204 points. Such a type of analysis was done by means of “parametric and non-parametric statistical tests based on daily data of stock prices covering the period from March-1st-2003 to August 30-2004”, (Onuor, n.p.).
However, another form of research, relevant to the current study, is aimed at separating time series factor of earnings from analysts’ forecasts, which give a sense of understanding unexpected earnings versus surprise component of earnings. Alzahrani (4-5) stated that “Time-series forecasts of earnings (yearly or quarterly) emerged first as a proxy which researchers often used to model expected earnings”, (Alzahrani, 4).
He explained that such studies usually employ a time-series model for predicting earnings. In such a model, two portfolios are generated, “one composed of companies with higher earnings than predicted and the other of companies with lower earnings than predicted by the time-series model”, Alzahrani (4). On the other hand, analysts’ forecasts are the most commonly used proxy these days to predict unexpected earnings. Several researchers and scholars find that analysts’ forecasting is a better alternative proxy for analysing market anticipations, as compared to forecasts made by time-series models.
Following are the findings obtained from analysis of Saudi Stock Exchange as recommended by several analysts.
Findings
Saudi Basic Industries Corp
At the time when analysis was made by Scott Darling, Ahmed Shamas and Ayed Taimuri Akhter, the company was not performing very well in the market. Just after the analysis report, the company’s trade spurted unexpectedly gaining some reputable points. The company opened with lower rates and closed with the higher points, and more than 2600 trades took place at the day. Before that day it was observed that even with higher number of trades the company suffered a lot of difficulties. The overall past record of the company for last 3 months before Scott’s analysis shows that there was a no gain no loss position.
The average accurate index value showed that that trade suffered a decline of -0.08 SAR. In the month of January 2011, the company’s share price graphed well, but in the month of Feb 2011 the company’s trading activities went into a decline position. On 17th Jan 2011 the share price reached to 112.25 SAR, which fell to 86 in the starting week of Mar 2011. HSBC, Credit Suisse, Taib Securities, Deutsche bank are some of the major names who encouraged the investors to invest in SABIC Equities.(“TAIB”)
Their trust wasn’t just an estimate or a guess, the past trend of the company showed that after going into a declining state, the company always did better than the past. The analysts “buy” and “overweighed” recommendations were absolutely correct since May 10 to Nov 10. The investors who invested definitely earned a lot as the share price doubled in just 4 months. Same as Taib securities was the name of some extra efficient specialists, who make good timely estimates that really worked for a large group of investors
Saudi Telecom
Since the time a suggestion from Nishit Lakhotia was made to make more investment in the company, till the second week of December, the value of STC stocks remained low. After that no prominent changes appeared in the market value of STC stocks. The peak value at index was just 43.6 and for a major time period it remained lower than 40 SAR. The company was at its worst at the end of the February. If we consider the recommendation made by Umar Faruqui, at the time of his analysis the trade volume of Saudi Telecommunication Company were more than 1 million trades. Buying at that spot was not a wise decision, as the market remained low after that time.
Same recommendations were given by Ghobrial, but the results remained same as discussed above. Good recommendations were made by Shantnau Sarkari and Asim Bukhari, as the market value of STC was low at the mid of August 2010, and a good positive change has been observed afterward. The market price of the shares of STC increased by 3-4 SAR and the trade counts were not very high with exceptions to few days. In the year 2008, STC struggled hard to maintain its market position. The analysis by RHYS of CITI was absolutely incorrect; the share price of the company was in consistent declining position and the company which usually traded its shares at more than 60, struck between 40 to 50 SAR.
In the last week of September, holding the shares was a good decision, because the market remained higher after 27th September till the second week of February 2011. Many of the analysts declared the company as a neutral one. The analysis of October to November 2010 declared the price of share neither bullish nor deerish. Nishit Lakhotia, Umar Faruqui & Ghobrial remain at bottom three, as their analysis was not perfect. This time Shantnau Sarkari and Asim Bukhari were the people with apposite recommendations up to some extent. RHYS and CITI kept in lower orders.
Saudi Electricity Company
The trade price of the share at 25 Nov 2008 was 9 SAR (Cordesman 63-87). A suggestion of buying more shares wasn’t a bad one as the company’s trade price didn’t fall under 9 for many months. However the trade value of the shares did not increase. The volume of trade was also not very huge. A suggestion to hold the stocks was presented by Muhammad Ali Shah in the start of the year 2010. A good and wise analysis was done by M Ali Shah, as the market was going up and down and a sudden consistent growth was recorded in the month of February, which remained consistent till the first week of April.
The suggestions of “natural behavior” and “overweighed” were declared by HSBC, NCB Capital and Taib Securities, as the trade price seemed to be neutral for the forecasted session. Reduction was suggested by Scott Darling in the last month of year 2010, which was not a good forecast as the equity of SECO got more stable in the market. The shares of the company traded well in year 2011 and their prices also got appreciated.
Samba Financial Group
Since the early period of the New Year, the trade price of the stocks of SAMBA has gradually been increasing. The decision of buying the stocks at that time was a good verdict, as from that time to the next 3 to 4 months, the value of SAMBA’s equities boosted very much. From March 2010 to May 2010 the trade value of the group’s share changed many times, but the rate revolved around 60 SAR. The outperforming review by Muhammad Hawa was not correct, as no such enormous change has been observed for the next six months. Same views of holding the stocks were given by M Ali Shah however an addition was recommended by Sofia El Boury and Asim Bukhari.
Buying was not a bad decision but was not good for a short term investor. Since September 2010, many analysts recommended to buy the shares of SAMBA Financial Groups. A recommendation of buying at this stage was not good, as the trade value decrease by 5SAR which is still undervalued as compared to the last year. Buying recommendations were given by WILLIAM A MEJIA, TARIK EL MEJJAD, RAJA GHOUSSOUB, RAHUL SHAH, MURAD ANSARI and AYBEK ISLAMOV. Again Asim Bukhtiar was the man with best estimations. His opinion was perfect for short term investors (Bukhari 2009).
Etihad Etisalat Co
The buying recommendation by Alexander Wright in the month of March 2010 was not wrong. The trade price of the company’s shares decreased just one time during the time of recommendation to the next four months. Buying at that stage was a good decision for short term investors; on the other hand we can say that dealing in the securities of Etihad Etisalat Co was much secured than other companies. The share of EEC was much stable than others and were in consistent growth.
From July 2010 to August 2010, the price of the shares of EEC revolved around 50 to 54, no marginal accession or decline recorded at that time. The buying reviews were suggested by Sally Gerges, Asim Bukhari, Marc Hammound and Simon Simonian. However, the post buying effects were not of great margin because as discussed above, the trade price of company’s share was very consistent during the period (Blake 230).
An excellent opinion was passed by Shantanu Sarkari as he suggested a neutral view. During the time from October to December 2010, the stocks adopted the same behavior of stability. Many analysts’ recommended investing more in the stocks, as they were foreseeing that the company’s trade price will not drop. Chritian Kern Irfan Ellam, Kunal Bajaj, Andrew Haskin and Farouk Miah recommended the company as outweighed. Their recommendations were good as per the past trend but as the market is an uncertain place, unfortunately the price of EEC shares dropped and are still lower than last year.
Banque Saudi Fransi
It’s the history of the company that it attracts low volume of investors. Muhammad Ali Shah in January 2010 recommended holding the shares of it; it was a fair recommendation by Muhammad Ali Shah, as the price of the stock of BSFR increased by 6 SAR. This change was not only for some days, the prices kept high for more than four months.MAHA MARHABA EL DADA recommended holding the securities in the month of March.
It was not a good analysis by Dada as the trade price unexpectedly fell after March. Selling the securities at that time was much better, and re-buying in the month of April was definitely in favor of investors. Muhammad Hawa gave a neutral opinion; he did that because of consistent price levels of BSFR. From the end of May 2010, the price of the stocks started to depreciate and hence the recommendation made by M Hawa proved to be wrong. Recommendations of buying from Asim Bukhari and Vishnu Kant in the month of July were also not good.
The price of the company’s shares dropped too much, while on the other hand the buying suggestion at 3rd week of August proved to be better. Buying and holding estimates were given from the time of Sep 2010 to Nov 2010. Vishal Gupta, Murad Ansari and Raja Ghoussoub also suggested buying more securities. As far as the market situation is concerned, the trade price did not increase but faced depreciation many times. A neutral opinion or even holding the shares was a better option rather than purchasing more.
The Saudi British Bank
A neutral suggestion was given by Belton Financial for the shares of this company for the first week of July 2009. However prior to that time, a month earlier, steadiness was observed in market share price of the company. Muhammad Ali Shah of global Investment House also recommended holding SABB shares in the last week of January 2010 (Dicks 195). Holding just for some days was a good decision as the market spurted immensely in last week of February.
Maximum trade volume was also recorded at 23 February 2010. That was the only level at which an investor got some margin in the shares of this company. After that date uniformity was recorded in trade vale. Three different views came across in the time range between March to May. Mah aMarhaba el Dada and Muhammad Hawa marked the shares of the company with an outperformed status. Contrary to that Sofia El Boury recommended to sell and Wasi Hassan said that the shares will be in Suspended coverage. Vishnu Kant suggested adding more, which was not an appropriate analysis as no major boost was recorded.
Hence there was more risk involved than returns. A marvelous analysis was made by Tarik Al Majeed who said to reduce the shares at the 1st week October. It was the best time when the prices of the company’s stock price were at maximum height. Holding the shares as per Rahul Shah’s suggestion was not very clever. No good returns are recorded after the first five days of October. Accumulation or buying more strategy was a totally raw idea at the time when this recommendation was given by Murad Ansari and William A Mejia (Cordesman 63-87).
Saudi Kayan Petrochemical Company
Majorly a neutral opinion was formed by the analysts for the company in the 2nd Quarter of year 2010. It was true that the company was keeping a constant trade rate, but over the period of three months, a bit declining situation was observed. The neutral suggestions by HASSAN I AHMED, SRIHARSHA PAPPU and DIGVIJAY SINGH were not incorrect, as the market remained between 18 to 16 SAR for the time their analysis was concerned. Reduction and underweight options were given by Taib Securities and Al Rajhi Capital respectively.
Scott darling also went into favor of stocks reduction. Contrary to them, a member of Deutsche recommended to hold the stock. Holding the stocks was the best decision as the market went well in the first month of the January 2011.(“Report: Saudi Arabia 2008” 96,182) Suggestion by Scott Darling was also correct as he suggested reducing the securities in the month of Dec 2010, which was the right time to release the stocks.
Yanbu National Petrochemical Company
A buying suggestion for the shares of this company was given by ALEKSANDAR STOJANOVSKI. Unfortunately, the recommendation proved to be totally wrong. This was because the trade price of the company’s shares decreased consistently in the next three months. In an opinion given by TAIB Securities, the company’s shares were declared overweighed in August 2010. However in reality, the share prices of the company unexpectedly changed in a positive way. A single decline and then further a continual rise have been observed in the trade value of the company’s share price. Ahmed Shams El Din suggested buying the stocks in the month of October 2010 which was a wise recommendation by the analyst as a constant growth has been observed for the shares in the market.
Sriharsha Pappu also mentioned that the stocks of the company are overweighed. Hence both the analysts were correct as the company captured the market during the period. Trade price of shares raised steady but constantly, even the business volume was kept low as compared to past months. Rating the company at neutral at the end of year 2010 was the correct opinion and such opinions were made by Scott Darling and Tariq Alaiwat.
Almarai Company
At the end of January 2010, an opinion to hold the shares came from Syed Taimur Akhter. It was the most appropriate analysis in my point of view because a consistent growth was recorded in the next five months of the opinion. No competitor was available in the market at that time, a range of product line covered the area of Middle East and Africa as well, (“Fruit processing, Volumes 15-16” 63-98) on such bases “Buy” was the call from Zain Malas, again the worst opinion coming from a member of Deutshe Bank. At the call date the price of the share was at 99 SAR and from that day onwards till the mid of August it kept lower than 99 SAR.
It was a poor suggestion for the short term or petty investors. Buying the stocks at that time was just tying up the capital and for no gain. For the very first time, Taib Securities gave an inappropriate opinion, as according to them the share of ALMARAI group was overweighed, whereas it was not the case. HSBC’s member, Erol Hullu gave an opinion of neutral change. Many of the analysts gave a neutral opinion during the months of October to December, The opinion seems right if we go through the index graph.
But after observing and studying the index deeply, it’s my conclusion that there should have been given a buy call from the analysts as a consistent yet slow growth has been observed. Asim Bukhtir, Samir Murad and Hasnain Malik were the only three analysts who made a good suggestion as the post opinion results were similar to their expectations.
Arab National Bank
Accumulate was the call from MAHA MARHABA EL DADA, however the behavior of the trade price remained neutral in the next three month of the opinion. Growth rate was not more than 1.5 SAR. Adding up more investment was not a good forecast by MAHA MARHABA EL DAD. According to MOHAMAD HAWA the market was to remain neutral. But the actual results were totally different (Dicks 195). The trade values remained in the declined position for the next three month, and therefore forecasting the shares at neutral was not correct. According to Mohammad Ali Shah, investors should have held their stocks from last month of June 2010, which shows that Ali Shah was forecasting some appreciation in stock rates of Arab National Bank.
His opinion was not correct at that time as no appreciation had been observed after the date of opinion. Vishnu Kant and Asim Bukhtiar recommended that more stocks should be added. It was a bad opinion as the rate of the stocks of the bank kept uniform and low. No big difference has been observed in the period ranging from the month of September to December 2010. Accumulating, Buying, Holding and Neutral opinions were totally incorrect
Saudi Arabian Mining Company
ALEKSANDAR STOJANOVSKI advised to hold the stocks, which was a good opinion in short run as well as long term. The stock value of the company increased and became uniform for approximately three months. SYED TAIMURE AKHTAR and DIGVIJAY SINGH both stated that the company’s shares will be overweighed hence gave a recommendation of buying more stocks. The recommendations were not of great importance as the company’s trade value remained constant for the next 4 months. Investing in such sort of securities for short term investors is not fruitful. Higher risk was involved as more than 6 times, the rate dropped to less than 22 SAR (Shoult 106). It must have been a challenging time for petty investors.
Two different opinions were found in the month of November 2010 as AHMED ALQAHTANI stated that the trade price will remain underweight, while on the other hand, Mazhar Khan of Al Rajhi Capital suggested the company’s stock as overweight. It means that Mazhar Khan was in favor of buying whereas Ahmed believed the opposite. The post index numbers make it clear that both the analysts were not correct. Neutral was the correct call from Scott Darling while the opinion of Raj was overweight in the month of December 2010. Raj however proved to be wrong in his opinion.
Rabigh Refining and Petrochemical Co
Taib securities predicted that the stocks of the company will be in an overweighed position. A little fluctuation has been observed in the share prices of the company but making an outweighed opinion was incorrect. Trade peaked for the next 3 months reaching at 25 SAR, whereas the lower end was at 22.5 SAR. The figures show the uniform behavior of the trade prices as no major enhancements were recorded in the later period for which the analysis was done. Neutral was the call from DIGVIJAY SINGH of Credit Suisse.
The call was perfect as just a fluctuation of 1 SAR was recorded in the next 3 months of the opinion. Again Scott Darling is the one with majority of appropriate decisions. Buying was the opinion made by Scott Darling, and it has been observed that in the very next month of his opinion, the trade value of Rabigh Refining and Petrochemical Co’s stocks jumped from 4 to 5 SAR. The growth was not consistent but provided an opportunity to earn well. Only in the early days of the month of March 2011, the trade value fell below 19 SAR but otherwise it remained stable at the rates above 24 SAR (Blake 230).
National Industrialization Co
The past record of NIC showed that the company’s trade value became better and better with the passage of time. Overweighed was the correct call from Taib Securities. From the month of September 2010 to the next 3 months, the trade value of National Industrialization Co changed from 26 to 32 SAR. It was a great achievement and the analyst team did a great job and forecasted accordingly.
Ankit Gupta of Securities& Investment Company suggested adding more stocks of NIC, which was a correct call. Majority of the analysts recommended holding NIC’s shares. Overweight and Buying were the calls from Tariq, Pappu and Scott Darling, and as mentioned above, these opinions were just because of a great past record. The trade prices went to a decline state in the starting of New Year, but climbed again and are still in a much stable state.
SAVOLA Group
Hold was the call by Zein Malas, if the call was just for a month then it was good otherwise the trade value of company moved downwards slightly. 36 SAR was the value of the stock at 16 March 2010 (opinion date) and it remained above 36 till April 2010. After the month of April, the trade price fell. No appreciation was recorded during the three months rather deprecation was seen during the month of May and June 2010. DIGVIJAY SINGH forecasted that the stocks of the company will show a neutral behavior. There is no doubt about this as a very little fluctuation was recorded after the forecasted date.
It was a marvelous opinion, and besides the ups and downs of the market, Singh predicted the situation very well. This time in August 2010, Taib Securities again declared the shares value of Savola Co as overweighed. But in this instance, the forecast made by Taib Securities was not correct. Buy was the call from Syed Taimur Akhter and in fact a wrong opinion was conveyed by this member of the Global Investment House. Neutral was a better decision or rather the best call as there seemed to be no Bull(s) n Deer(s) in the next 3 months. Khalid Alruwaigh also overweighed the stocks of the company. Farouk Miah was the only person to give a perfect opinion.
Mobile Telecommunications Company Saudi Arabia
It is true that telecommunication is gaining more popularity in the developing countries such as Saudi Arabia. Accumulate was the call from Louna Merhi a member of Audi Capital KSA, in January 2010. The post results showed that the call was incorrect, as the trade value of the stock kept low. It means that the actual opinion should have been neutral as the stock value fluctuation was not more than 1 SAR. According to Asim Bukhtiar the member of Riyadh Capital, a suggestion was to hold the stocks. The opinion was just because of the past trends shown by the share prices of the company; however, this time the opinion was totally wrong.
The stock price kept low proving that holding stocks at that point was not fair. Selling at that point was the best option because the trade rate was just kept at 7 and at the date of opinion that rate was 10 SAR. Taib securities set their opinion on neutral. It was the best opinion, as the securities never went in much excited state. Alexander Wright in the month of Sep 2010 gave an opinion of selling the shares. Selling was the call from Martin and Nadine Ghobrial and in my opinion and as far as the index is concerned, it was the best suggestion given by two analysts in the month of October 2010. No appreciation has been recorded after the month of October.
The trade price of the company’s share fell to its lowest in the first week of December 2010. Neutral opinion was showed by two senior analysts, Andrew Haskinof Al Rajhi Capital and Faroukh Miha in the month of December 2010. The call was right; it was not so difficult for such senior analysts to give such opinion. The company’s trade price in the market was obvious and there were no symptoms of any appreciation.
Saudi Hollandi Bank
Muhammad Ali Shah the member of Global investment house KSCC gave an opinion to hold the stocks in the month of January 2010. It was a wise decision as there was a very little appreciation in the trade value of the stock. The appreciation was not so material but holding for some weeks and selling the stocks at some peak values was a good option. MAHA MARHABA EL DADA of Audi Capital also suggested holding the stock in the first week of March 2010. The stock kept in the range of 34 to 36 SAR. Short term holding was good hence Dada gave an appropriate opinion. The past index showed that the company index was going neutral.
Past experiences affected the suggestion of Mohammad Hawwa making him to predict so for the month of May 2010. The opinion was correct, holding or saying that the stocks were neutral were the best suggestions for the company at that time. By the past experience SRIRAM BALASUBRAMANIAN of Bank of Muscat gave an opinion of holding the stock. At last days of October 2010 Murad Ansasri gave an opinion to buy more. A similar opinion was given by Rahul Shah on the first week of November 2010; both of them were totally wrong. The company was not in a good situation, no such opinion can be expected from such reputable consultants.
Jarir Marketing Co
ZEIN MALAS gave an opinion of holding the stocks in the month of May 2010. For the next two months, the stock values remained low. If holding for long term bases was suggested then it was a correct decision as the market got an appreciation of 7 SAR by the end of July 2010. Ahmed Khalil in the month of July 2010 suggested a neutral behavior from stock market.
Buying was much suitable as compared to neutral suggestion. The stock markets fluctuated many times and kept higher at most of the times. Both Faroukh Miah and Ambreen Jiwani had an opinion of neutral market in the month of October 2010. In actual there was a clear decline in the stock market and instead of neutral selling, reduction was an appropriate opinion. All three Waffa Badoor, Raj Sinha and Hateem Alla suggested investing more in JARIR Equity in November 2010. Investment for short term was good, but just for two months. According to me the opinion was not incorrect as there was sudden appreciation in market value.
Asim Bukhtiar gave an opinion of buying more stocks in the month of December 2010, which at that point it was not correct as the price was in a uniform motion and buying at that stage was not as fruitful as a month back. It was in fact a lower selling point for a small investor.
The National Shipping Co. of Saudi Arabia
Kareem Z Murad suggested buying more stocks in the company at first day of February 2009, and after that day the company index kept low. At that time the opinion was correct as the market boosted with more than 5 SAR. Same opinion was provided by Alaa Ghanem, a year later than Saleh. It was also correct at that time, an appreciation has been observed in the upcoming two months (Shoult 602).
Team coverage of Taib Securities was not correct at this time as they again overweighed the company, whereas the company at that time (August 2010) was in a neutral state. Scott darling this time suggested buying the shares, and this time it was 1st December 2010. He was right again as a sudden appreciation proved him to be a perfect analyst (Cordesman 68).
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