Saudi Arabia's stock market has started to recover after pricing in weak earnings from petrochemical producers and banks, and since many of these shares remain recommended by analysts, they may drive the market higher in coming sessions. The past month has been a poor one for Saudi stock investors, with the main index losing about 7 percent. Disappointing third-quarter bank earnings were one blow. Al Rajhi Bank, Saudi Arabia's largest listed bank, reported Sunday that quarterly net profit fell 3.5 percent from a year earlier to SR1.87 billion ($498 million). That was below SR2.11 billion predicted by a Reuters analyst poll. Riyad Bank, Saudi British Bank and Banque Saudi Fransi, the Kingdom's third, fourth and fifth largest lenders, also missed expectations. Petrochemical firms, heavily weighted in the index, suffered weak earnings. Saudi Basic Industries Corp (Sabic), the world's biggest petrochemicals group by market value, posted a 23 percent slump in third-quarter net profit Wednesday. But analysts said the gloom was not complete in either sector. Sabic, hit by soft prices for its products because of the struggling global economy, managed to beat analysts' forecasts slightly. And the banks, which said higher expenses weighed on their profits, appear to have been hit primarily by loan-loss provisions. One banking industry source said Saudi regulators had encouraged banks to take sizeable provisions as a precaution with the year-end approaching. Since the Saudi economy remains strong, with growth running at around 4 or 5 percent, some of these provisions may prove unnecessary and the fourth quarter is unlikely to be as expensive, analysts said. "Banks were a negative surprise - they have been trying to take provisions to offset the risk as growth in loan volumes increases," said Asim Bukhtiar, head of research at Riyad Capital. "If you take away the provisions, the numbers are strong. Q4 for banks is expected to be better, especially since their stock prices have hit lows." Haissam Arabi, chief executive and fund manager at Dubai-based Gulfmena Investments, said: "Both petrochemicals and banks don't justify the move on the index - the sell-off was a little bit excessive. "Banks are still a good, neutral weight to hold and petrochemicals may have bottomed out. For gutsy investors, this is a good time to come in." Arabi said he favored shares in Saudi Arabian Fertilizers within the petrochemical sector. "There is steady growth in ammonia prices and it is a good dividend yield play." Riyad Capital's Bukhtiar said small and mid-sized banks were good buys, such as Bank Albilad, Bank Aljazira and Alinma Bank. Telecommunications are also attractive, several analysts said. They are a direct play on the strength of the local economy, and are expected to benefit from increasing consumer demand for data services. Mobily and Saudi Telecom Co are both due to report third-quarter earnings in coming days. Mobily is expected to post an 18 percent increase in net profit, while analysts forecast a 55 percent jump in STC's earnings. The main stock index, which rose 0.9 percent to 6,811 points Wednesday, is already showing some preliminary technical signs of a recovery. In the last three days it has bounced from near strong chart support around 6,600 points, where it bottomed three times in June and July this year. Next week it is likely to trade sideways around 6,700-6,800 points, according to Hesham Tuffaha, head of asset management at Bakheet Investment Group. "We're about five sessions away from Eid holidays, and investors tend to take a back seat before a long vacation." After the holidays, he expects the market to rally, led by large-capital stocks. "The momentum of global equities will be up, and a US unemployment rate below 8 percent is also a positive lead for the market." The Saudi Gazette
