Mazen Al-Sudairi, head of research at Al-Rajhi Capital, said that the valuation of the Saudi market is high after record transactions that exceeded 18.57 billion riyals on Monday, and the entry of individuals may increase volatility and the speed of the correction.
Al-Sudairy attributed the increase in the profitability of the stock market as a whole to the high losses of petrochemical companies during the current year.
The losses of the petrochemical sector, in turn, raised the average of the repeaters. It is expected that the average price of petrochemicals will be at 1050 dollars in 2021 and the operational efficiency is 85%, knowing that there will be a high increase in supply, but most Saudi factories have fixed feedstock prices, which are expected to result in profits of up to 18,5 billion. “
So far, losses of the petrochemical sector amounted to 5.9 billion riyals, but by the end of 2021 they will reach 18.5 billion riyals, while the profits of the banking sector are at 40 billion riyals. ”
Al-Sudairy added, “The two sectors account for more than 70% of the market’s profits, so the Saudi market’s EP will be, except for Aramco, at 20, which is close to its historical average. There is no doubt that the high profits of the banking sector and the petrochemical sector will lead to the decline of repeaters.”
Al-Sudairy said that the trading of individual investors is limited to rapid speculation and movement between stocks, especially the weak ones, without referring to the fundamentals of investment, which raises the risk of corrections.
Al-Sudairy added, “20% of yesterday’s trading was based on 5 companies (Fish, Al-Development, Sera, Tabuk Agricultural, and Dar Al-Arkan). The entry of retail companies will increase market volatility and on the other hand will lead to the correction of higher prices in the market. What fund managers should pay attention to. That with the rise of the market, this may lead to the exit of institutional investors. Individuals entering the market are weak because they are not keen on continuity, unlike the institutional investor who has a clear vision and plan and their presence gives the safety and solidity of the market in its assessments.
Al-Sudairy added, “The change of the petrochemical sector and the ministry overseeing it indicates that the future outlook for petrochemicals is an independent strategic industry like minerals and is not linked to the oil industry.”