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The Saudi Equity Market: Challenges & Opportunities Tarek Fadlallah, CFA Nomura Investment Banking (Middle East) B.S.C. (c) CFA Bahrain Forecast Dinner January 30 th, 2010
2 © Nomura Investment Banking (Middle East) B.S.C. Performance Review
3 © Nomura Investment Banking (Middle East) B.S.C. Diversity of Character
4 © Nomura Investment Banking (Middle East) B.S.C. Monetary Accommodation
5 © Nomura Investment Banking (Middle East) B.S.C. The Oil Lubricant
6 © Nomura Investment Banking (Middle East) B.S.C. The Virtuous Circle Key Sectors Housing/Construction Financial Services Education Infrastructure/Utility Healthcare Tourism Source: Nomura
7 © Nomura Investment Banking (Middle East) B.S.C. Economic Forecasts Source: IMF, Oct 2009 Source: SAMA, NCBC Research, *Provisional numbers from Saudi MOF in 2010 budget Regional economies are set to rebound sharply following last year’s slowdown with IMF forecasting 5.3% real GDP growth Saudi Arabia’s numbers are strong particularly for its size.
8 © Nomura Investment Banking (Middle East) B.S.C. Low Leverage To bring the leverage ratio back to its historic average the UAE economy can either: grow its way out of debt reduce bank credit by AED 203 billion ($55 billion) ….a combination of both Saudi Arabia credit is broadly at the historical average
9 © Nomura Investment Banking (Middle East) B.S.C. Well Diversified
10 © Nomura Investment Banking (Middle East) B.S.C. Challenges Economy too reliant on oil revenues, government spending and cyclical sectors (e.g. banks and petrochemicals) Following ascension to WTO the pipeline of deregulation has slowed Industrial fragmentation is hurting efficiency and retarding faster economic development Management depth and labour quality needs improvement Lack of institutional investors and dependence on retail investors is keeping market volatile There is a need to continuously improve Transparency and Corporate Governance
11 © Nomura Investment Banking (Middle East) B.S.C. It’s About the Oil
12 © Nomura Investment Banking (Middle East) B.S.C. Tight Credit
13 © Nomura Investment Banking (Middle East) B.S.C. End of Multiple Expansion?
14 © Nomura Investment Banking (Middle East) B.S.C. Mirror Mirror: Wall Street / Tokyo
15 © Nomura Investment Banking (Middle East) B.S.C. History Lesson
16 © Nomura Investment Banking (Middle East) B.S.C. Conclusions The Saudi stock market is likely to drift in a trading range credit conditions remain challenging recovery in corporate earnings is moderate individuals bruised and foreign access/appetite limited Back to basics and a time to revisit business models, financial architecture and regulator frameworks build a deep sukuk market to compliment bank lending reinforce regulations and promote greater transparency The worst may be over but the road to prosperity is long
17 © Nomura Investment Banking (Middle East) B.S.C. DISCLAIMER This presentation has been prepared by, and is subject to the copyright of, Nomura Investment Banking (Middle East) B.S.C. (“Nomura”). No part of this presentation may be reproduced, transmitted, stored in a retrieval system or translated in any other language in any form, by any means without the prior written consent of Nomura. This presentation is confidential and has been furnished to the intended recipient solely for such recipient’s information and private use and may not be referred to, disclosed, reproduced or redistributed, in whole or in part, to any other person. This presentation has been prepared on the basis of information provided to Nomura by various sources and publicly available information. This information has not been independently verified by Nomura. This presentation does not constitute a due diligence review and should not be construed as such. No representation or warranty as to this presentation’s accuracy, completeness or correctness is made and no reliance should be placed on the accuracy, completeness or correctness thereof. The information contained, and any opinions expressed, in this presentation are subject to change at any time and Nomura is under no obligation to inform the intended recipient or any other person of any such change. Nomura accepts no responsibility or liability whatsoever in relation to this presentation (including for any error contained in this presentation or in relation to the accuracy, completeness or correctness of this presentation or in relation to any projections, analyses, assumptions and/or opinions contained herein nor for any loss of profit or damages or any liability to a third party whatsoever arising from the use of this presentation). The exclusion of liability provided herein shall protect Nomura, its officers, employees, agents, representatives and/or associates in all circumstances. This presentation is not intended to form the basis of any investment decision and does not constitute or form part of any offer to sell or an invitation to subscribe for, hold or purchase any securities or any other investment, and neither this presentation nor anything contained herein shall form the basis of or be relied on in connection with any contract or commitment whatsoever. This presentation is not, and should not be treated or relied upon as investment research or a research recommendation under applicable regulatory rules. Nomura Investment Banking (Middle East) B.S.C. is authorised and regulated by the Central Bank of Bahrain.
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