Tadawul institutional ownership rises further but different drivers


After reaching multi-year lows during August-September 2016, Saudi Stock Exchange (Tadawul)‘s traded value increased to hit a 8-month high in December 2016 with the market gaining 28% during that period, Al Rajhi Capital said in its report titled “Tadawul: Institutional ownership makes further headway”.

According to ARC Research team, Saudi mutual funds’ aggressive net buying, especially the private funds’, seems to be one of the key factors driving the activity during this period, along with improved sentiment on the back of the Kingdom’s successful international sovereign bond issuance and budget announcements.

The report further revealed that rising institutional ownership trend continues but different drivers: ARC Research team highlighted in a previous report on ownership trends “Rising institutional ownership” published in September 2016, that the shift in ownership from Saudi individuals to Saudi institutions has been underway since the past few years. This trend is continued in Q4 2016 as well. While GREs (Government-related entities – largest constituent of Saudi institutions group) were the major driver for this trend until Q3 2016, it was Saudi mutual funds, led by private funds that drove the surge in institutional ownership in Q4 2016. Since August 2015, when Tadawul started publishing detailed ownership data, Saudi individuals’ ownership dropped 420bps to 28.4%, while Saudi Institutions’ ownership increased 540bps to 65.2%.

It further noted that lower trading activity. Declining retail ownership seems to have led to decline in trading activity, as institutions tend to have lower portfolio churn (annualized) i.e. 0.14x of portfolio value vs. 2.2x for Saudi individuals. Tadawul traded value for Jan and Feb 2017 is 25% lower vs. same period last year, and 40% lower vs. average of last 3 years’ same period.

However the report noticed that REIT volumes drive trading activity. Two REITs (i.e., Riyad and Al Jazira, listed on Tadawul in Nov. 2016 and Feb. 2017 respectively) accounted for average 10% of Tadawul traded value from the time both funds got listed (15 trading sessions between Feb. 15 to March 7). However, the combined market cap of both funds stands at just SR0.9 billion vs. SR690 billion free float market cap of TASI.

In addition, QFI ownership remains low, but starts to inch higher. After remaining stable at 0.09% during Oct. 2015 to Oct 2016, the QFI ownership has risen gradually while ownership through SWAP has declined. ARC Research team believes lesser stringent requirements and changes to settlement cycle etc., effective from mid-2017, expected reviews by major index providers and Aramco IPO may provide the required impetus to drive QFI ownership higher over the medium term.

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