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Hans-Peter Huber, PhD Chief Investment Officer Riyad Capital 6775 Takhassusi St. – Olaya Riyadh 12331-3712 [email protected]

Saudi Economic Chartbook

First Quarter 2019

Saudi Economic Chartbook First Quarter 2019

Page 1

Table of Contents:

GDP Data ………………….…………. 2

Monetary and Financial

Indicators ………………………….… 3

Fiscal Balance and

Government Debt…………………. 6

Private Spending and

Foreign Trade …............................... 7

Non-Oil Business Climate

Indicators …………………...……….. 8

Inflation Indicators …………….... 9

Real Estate Market …………..... 10

Oil Market …….………………………12

Foreign Exchange and

Interest Rates …….………...……… 13

Saudi Balance of Payments ..….15

Saudi Equity Market ………...... 16

Saudi Economic Outlook …....... 18

Credit and Broad Money Supply Picking Up

After a contraction in 2017

credit to the private sector

has continuously picked up

during last year to reach

3.0% yoy by end of 2018.

source: SAMA

Growth Acceleration of the Non-Oil Economy into 2019

GDP growth of the overall economy has notably picked up in the second half

of 2018. This has primarily been the result of a substantial oil output expan-

sion. For 2019 we expect a moderate growth slowdown as the oil production

will broadly stabilize at last year’s level.

There are increasing signs of a further growth acceleration of the non-oil

economy. Credit growth to the private sector has started to sustainably re-

cover and has reached 3.0% yoy in December 2018 (see figure below).

Purchasing Manager Indices as a proxy for the business climate of the non-oil

economy have temporarily stalled in H2 2018. However, at the beginning of

2019 we see encouraging signs of a pick-up which may indicate further accel-

erating economic activity into 2019.

On the back of the latest OPEC agreement, Saudi Arabia has started to scale

down its oil production in December after a peak output at 11.0 mbd reached

in November. Based on secondary sources, January production has been fur-

ther trimmed to 10.2 mbd.

SAR money market interest rates picked up in the course of 2018 with the 3M

SAIBOR ending the year at 3.0%. Based on our new baseline scenario of only

one single FED rate hike in 2019, SAR interest rates are close to their peak.

TASI has seen a strong start into 2019, which has essentially been fueled by

substantial foreign institutional capital inflow. However, overall trading vol-

umes have remained subdued in the first weeks of the year.

Credit to the private sector, %yoy

Money supply M3, %yoy

-5.0

0.0

5.0

10.0

15.0

20.0

12/12 12/13 12/14 12/15 12/16 12/17 12/18


Page 2

source: GASTAT source: GASTAT

Real GDP growth Overall economy, quarterly % yoy Real GDP growth Non-oil private sector, quarterly % yoy

Gross Domestic Product (GDP) Overall Economy and Institutional Sectors

Real GDP growth of the overall economy accelerated

in H2 2018. Based on preliminary GASTAT data, Q3

growth picked up to 2.5% and our GDP tracker mod-

el indicates a Q4 growth rate of about 4.0%. This is

primarily the result of a substantial growth contri-

bution by the oil sector which, according to our

models, has reached about 6.0% in Q4 2018 on the

back of a substantial oil output expansion.

source: GASTAT, RC source: GASTAT

Real GDP growth Oil-sector, quarterly % yoy Nominal GDP growth Non-oil private sector, quarterly % yoy

GDP deflator Non-oil private sector % yoy

CPI inflation % yoy

Figure 2:

Nominal and Real GDP Non-Oil Private Sector

Figure 1:

Real GDP Overall Economy and Oil Sector

Figure 3:

Monthly GDP Tracker of Overall Economy

Figure 4: GDP Deflator and CPI Inflation

Real GDP growth Overall economy, quarterly, %yoy

Real GDP growth Tracker Overall economy, monthly, %yoy

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

Q3/12 Q3/13 Q3/14 Q3/15 Q3/16 Q3/17 Q3/18-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Q3/12 Q3/13 Q3/14 Q3/15 Q3/16 Q3/17 Q3/18

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Q3/12 Q3/13 Q3/14 Q3/15 Q3/16 Q3/17 Q3/18


Page 3

source: SAMA source: SAMA

Monetary base, % yoy Aggregate M3, % yoy

Monetary Aggregates, Credit and Commercial Banks’ Deposits

Broad money supply M3 picked up in H2 2018 and

grew in December by 2.8% yoy. This is the result of

an expansion of commercial banks’ deposits over

this period. Meanwhile, credit to the private sector

shows signs of a sustainable rebound after the con-

traction in the course of 2017. By end of last year

credit growth reached 3.0% yoy after having con-

tracted by -0.6% throughout the year 2017.

Banks’ claims on private sector, % yoy, l.h.sc.


Banks’ claims on private sector, % mom, r.h.sc.

Aggregate M1, % yoy Aggregate M2, % yoy

Banks’ overall customer deposits, % yoy, l.h. sc.

Banks’ overall customers deposits, % mom, r.h.sc.

Figure 2:

Growth Rate Monetary Aggregates M2 and M3

Figure 1:

Growth Rate Monetary Base and Aggregate M1

Figure 4: Growth of Commercial Banks’ Deposits

Figure 3:

Growth of Credit to the Private Sector

-10

-5

0

5

10

15

20

25

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-3

0

3

6

9

12

-5

0

5

10

15

20

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-10

-5

0

5

10

15

20

25

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-3

0

3

6

9

12

-5

0

5

10

15

20

12/12 12/13 12/14 12/15 12/16 12/17 12/18


Page 4


Claims on the private sector as % of total bank deposits Claims on the government as % of total bank deposits

Excess liquidity in the banking system clearly im-

proved in Q4 2018 due an increase of commercial

banks’ deposits at SAMA. This is also reflected in the

loan-deposit-ratio to the private sector which de-

clined from 89.2 in October to 86.4 in December. On

the other hand, outstanding loans to the government

sector (i.e. government bonds held by commercial

banks) overall stabilized in Q4 2018 at 21%.


Gross foreign assets as % of total assets Excess liquidity as % of total assets

Commercial Banks Key Ratios

Net foreign assets as % of total assets

Figure 1:

Private Sector Loan-Deposit-Ratio

Figure 2:

Government Sector Loan-Deposit-Ratio

Figure 3:

Foreign Assets to Total Assets Ratio

Figure 4:

Excess Liquidity to Total Assets Ratio

75.0

80.0

85.0

90.0

95.0

12/12 12/13 12/14 12/15 12/16 12/17 12/184.0

8.0

12.0

16.0

20.0

24.0

12/12 12/13 12/14 12/15 12/16 12/17 12/18

0.0

4.0

8.0

12.0

16.0

12/12 12/13 12/14 12/15 12/16 12/17 12/1810.0

12.0

14.0

16.0

18.0

20.0

12/12 12/13 12/14 12/15 12/16 12/17 12/18


Page 5

source: SAMA


Total foreign currency reserves at SAMA, in bln SAR, l.h.sc. Total government deposits at SAMA, in bln SAR, l.h.sc.

As a result of the fiscal spending increase in Q4 2018 government deposits at SAMA declined over this period by overall 90bln SAR of which 60bln in De-cember. This also translated into an outflow of for-

eign currency reserves of 40bln SAR at SAMA during this period which was funded through a correspond-ing reduction in foreign deposits while foreign secu-rity investments remained unchanged.

Investments in foreign securities, in bln SAR Government and gov. institutions deposits at commercial banks, in bln SAR, l.h.sc.

source: SAMA

SAMA Balance Sheet: Key Elements of Assets and Liabilities

Figure 1:

Foreign Currency Reserves at SAMA

Figure 2:

Government Deposits at SAMA

Figure 3:

Breakdown of Foreign Currency Reserves at SAMA

Figure 4:

Government Deposits at Commercial Banks

Monthly change in foreign currency reserves at SAMA, in

bln SAR, r.h.sc.

Monthly change in total government deposits at SAMA,

in bln SAR, r.h.sc.

Foreign currencies & deposits abroad, in bln SAR Monthly change in governmental deposits at commercial banks, in bln SAR, r.h.sc.

-100

-60

-20

20

60

100

1,600

1,800

2,000

2,200

2,400

2,600

2,800

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-150

-100

-50

0

50

100

150

600

800

1000

1200

1400

1600

1800

12/12 12/13 12/14 12/15 12/16 12/17 12/18

0

500

1,000

1,500

2,000

2,500

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-60

-30

0

30

60

90

200

240

280

320

360

400

12/12 12/13 12/14 12/15 12/16 12/17 12/18


Page 6

source: MoF source: MoF

Oil revenues

Non-oil revenues

Employee compensation (salaries & wages)

The last quarter 2018 was characterized by a sharp

increase in fiscal spending, similar to the previous

two years. This resulted in a notable expansion of

the quarterly deficit to 87 bln SAR which was funded

through a corresponding withdrawal of government

deposits at SAMA as illustrated on page 5. However,

due to record low deficits in the first three quarters

the yearly deficit 2018 dropped to -136 bln SAR.

source: MoF source: MoF

Net deficit/surplus Outstanding local government debt, in bln SAR

Other current expenditure

Quarterly Fiscal Balance and Outstanding Government Debt

Figure 1:

Quarterly Fiscal Revenues (in bln SAR)

Figure 2:

Quarterl Fiscal Expenditure (in bln SAR)

Figure 3:

Quarterly Fiscal Deficit/Surplus (in bln SAR)

Figure 4:

Outstanding Government Debt (End of Quarter)

Capital expenditure

Outstanding foreign government debt, in bln SAR

5279

101 102 112 101 94129 114

184154 155

32

76 2752 32 63

48

113

52

89

69 77

84

155

128

153144

164

142

241

166

274

223232

0

50

100

150

200

250

300

350

400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

99 103 98 109 94 103 107137

113131

110 120

5272

48

115

47

7449

139

62

102

85

10324

38

35

37

29

33

35

83

26

48

36

95

175

213

181

261

170

210191

358

201

281

231

318

0

50

100

150

200

250

300

350

400

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

-91

-58 -54

-108

-26

-47 -49

-117

-34

-7 -7

-87

-140

-120

-100

-80

-60

-40

-20

0

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

182222 239

213 205 205239 260 277 289 295 305

3838 103 103

137

137

184206

248 255 255

182

260277

317 308

341

376

443

484

537550 560

0

100

200

300

400

500

600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018


Page 7

source: SAMA source: Thomson Reuters

Point-of-sales transactions, % yoy

3-Month Moving Average, % yoy

TR IPSOS Saudi Primary Consumer Sentiment Index

Point-of-sales transactions further expanded in the

last quarter 2018 but growth momentum gradually

slowed down. Meanwhile, investor sentiment con-

tinued to recover from its lows at the beginning of

2018. The growth slowdown in non-oil exports dur-

ing Q4 2018 may be explained by a drop in prices of

petrochemical products which constitute a majority

of non-oil exports.


Non-Oil exports, % yoy Imports, % yoy

3-Month Moving Average

Private Spending Indicators and Non-Oil Foreign Trade

Figure 1:

Point-of-Sales Transactions

Figure 2:

Consumer Sentiment

Figure 3:

Growth of Non-Oil Exports

Figure 4:

Growth of Imports

3-Month Moving Average, % yoy 3-Month Moving Average, % yoy

-20

-10

0

10

20

30

40

12/12 12/13 12/14 12/15 12/16 12/17 12/18

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

12/12 12/13 12/14 12/15 12/16 12/17 12/18-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

12/12 12/13 12/14 12/15 12/16 12/17 12/18

50

55

60

65

70

01/13 01/14 01/15 01/16 01/17 01/18 01/19


Page 8

source: Markit source: Markit

Emirates NBD PMI Composite


Emirates NBD PMI Output

Saudi Purchasing Manager Indices witnessed a nota-

ble improvement in January 2019. The jump of the

composite index was primarily driven by the PMI

New orders which surged from 58.4 to 62.2. This is a

promising sign for future economy activity at the

beginning of this year. On the other hand, the drop

of the PMI output prices illustrates that companies

in general still do not have pricing power.

source: Markit source: Markit

Emirates NBD PMI New Orders

Non-Oil Private Sector Business Climate Indicators

Emirates NBD PMI Output Prices


6-Month Moving Average 6-Month Moving Average

Figure 1:

Purchasing Manager Index Composite

Figure 2:

Purchasing Manager Index Output

Figure 3:

Purchasing Manager Index New Orders

Figure 4:

Purchasing Manager Index Output Prices

50

52

54

56

58

60

62

64

01/13 01/14 01/15 01/16 01/17 01/18 01/1954

56

58

60

62

64

66

68

70

01/13 01/14 01/15 01/16 01/17 01/18 01/19

48

52

56

60

64

68

72

01/13 01/14 01/15 01/16 01/17 01/18 01/1946

48

50

52

54

56

01/13 01/14 01/15 01/16 01/17 01/18 01/19


Page 9


CPI inflation, % yoy CPI inflation, % yoy

CPI inflation dropped to -1.9%yoy in January 2019

from 2.2%yoy in December 2018. This is due to the

impact of the fiscal reform measures, notably the

VAT introduction and the energy price increases,

which have fallen out of the observation period. This

effect has been most pronounced in the case of the

transportation sub-index (gasoline prices) which

declined from 12.1% to -0.8%.


CPI inflation, sub-index Transport, % yoy

WPI inflation, % yoy

Consumer and Wholesale Price Inflation

CPI inflation, sub-index Furnishings, household equipment &

maintenance, % yoy

CPI inflation, sub-index Food and beverages, % yoy

CPI inflation, sub-index Housing, water, electricity, gas and

other fuels, % yoy

Figure 1:

Consumer Price Inflation All Items

Figure 2:

Consumer Price and Wholesale Price Inflation

Figure 3:

CPI Inflation Food & Housing

Figure 4:

CPI Inflation Furnishings & Transportation

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

01/13 01/14 01/15 01/16 01/17 01/18 01/19

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

01/14 01/15 01/16 01/17 01/18 01/19-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

01/14 01/15 01/16 01/17 01/18 01/19

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

20.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018


Page 10

source: MOJ, RC

Real estate transactions remained subdued in H2

2018 with total transaction value diminishing by

about 40% in a year-on-year comparison for both

Q3 and Q4. For the full year 2018, the total value of

real estate transactions turned out to be 36% below

the previous year with residential transactions de-

clining by -31% while the commercial transaction

value decreased by -46%.

source: MOJ, RC source: MOJ, RC

Total value of quarterly transactions, %yoy

Number of quarterly transactions, %yoy

Real Estate Market: Transaction Activity

Riyadh Region

Makkah Region

Eastern Region

All Other Regions



source: MOJ, RC



Figure 1:

Quarterly Real Estate Transactions Overall Country

Figure 3:

Quarterly Commercial Real Estate Transactions

Figure 4:

Breakdown of Transaction Value by Regions (Q4 2018)

Figure 2:

Quarterly Residential Real Estate Transactions

-50

0

50

100

150

200

Q4/11 Q4/12 Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/18

-50

0

50

100

150

200

Q4/11 Q4/12 Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/18

-50

0

50

100

150

200

Q4/11 Q4/12 Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/18

44.4%

22.6%

16.6%

16.4%


Page 11


In Q4 2018 real estate prices accelerated their

downturn. This particularly applied to residential

real estate prices which dropped in Q4 by -6.0% yoy

after a decline of -3.7% in Q3. Price indices are still

dominated by the price development of unused land

which constitutes about 93% of all real estate trans-

actions and, as a consequence, has a corresponding-

ly strong weighting in the overall index.


Residential villas price index

Residential price index Residential land price index

Commercial land price index Commercial price index

Real Estate Market: Price Indices

Residential apartments price index

Commercial centers price index

Commercial shops & galleries price index

Figure 1:

Residential and Commercial Price Indices

Figure 2:

Residential and Commercial Land Price Indices

Figure 3:

Residential Villas and Apartments Price Indices

Figure 4:

Commercial Shops and Centers Price Indices

70

75

80

85

90

95

100

105

Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/1870

75

80

85

90

95

100

105

Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/18

80

85

90

95

100

105

Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/1880

85

90

95

100

105

Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/18


Page 12

source: JODI, Bloomberg source: JODI

Saudi Arabian crude oil production, in 1000 bd.

Saudi Arabian total oil refinery output in 1000 bd.

After having increased its crude production from

May to November 2018 by 1.0 mbd to 11.0 mbd,

Saudi Arabia started to cut output in December to

10.6 mbd, in adherence to the OPEC agreement.

Based on secondary sources, January output is ex-

pected to be further scaled down to 10.2 mbd. OPEC

production has been reduced from October to De-

cember 2018 from 32.8 mbd to 31.9 mbd.

source: JODI, Bloomberg source: Bloomberg

Brent oil price OPEC crude oil production, in 1000 bd

WTI oil price

Oil Market Statistics: Production, Exports, Refinery and Prices

Saudi Arabian crude oil export, in 1000 bd. Saudi Arabian total oil refinery export, in 1000 bd.

Figure 1:

Saudi Crude Oil Production and Exports

Figure 2:

Saudi Crude Refinery Output and Exports

Figure 3:

OPEC Crude Output

Figure 4:

Oil Prices

6500

7000

7500

8000

8500

9000

9500

10000

10500

11000

11500

12/12 12/13 12/14 12/15 12/16 12/17 12/18

0

500

1000

1500

2000

2500

3000

3500

12/12 12/13 12/14 12/15 12/16 12/17 12/18

29000

30000

31000

32000

33000

34000

12/11 12/12 12/13 12/14 12/15 12/16 12/17 12/18

20

30

40

50

60

70

80

90

02/15 02/16 02/17 02/18 02/19


Page 13

source: Bloomberg source: Bloomberg, JP Morgan

12-month forward exchange rate USD/SAR

The USD/SAR 12-months FX-forward premium has

declined to historically low levels of approx. 60 bp in

February 2019 after having spiked to 170 bp in De-

cember due to a strong temporary correction of oil

prices down to 50 USD for Brent during that month.

Meanwhile, the trade-weighted SAR index gradually

weakened in real and nominal terms since Novem-

ber after a strong appreciation in H1 2018.

source: Bloomberg source: Bloomberg, JPMorgan

SAR Real (CPI-adjusted) trade-weighted exchange rate index

SAR Nominal trade-weighted exchange rate index

Foreign Exchange: Forward Rates and Effective Exchange Rate Index

12-month forward exchange rate USD/SAR

SAR Nominal trade-weighted exchange rate index

SAR Real (CPI-adjusted) trade-weighted exchange rate index

Figure 1:

12-Months Forward Exchange Rate SAR/USD

Figure 2:

SAR Nominal and Real Effective Exchange Rate

Figure 3:

12-Months Forward Exchange Rate SAR/USD in

the Long Term

Figure 4:

SAR Nominal and Real Effective Exchange Rate in the

Long Term

3.73

3.75

3.77

3.79

3.81

3.83

3.85

02/15 02/16 02/17 02/18 02/19104

108

112

116

120

124

128

02/15 02/16 02/17 02/18 02/19

3.65

3.70

3.75

3.80

3.85

2000 2002 2004 2006 2008 2010 2012 2014 2016 201880

90

100

110

120

130

140

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018


Page 14

source: Bloomberg source: Bloomberg

3-months SIBOR (Saudi Interbank Offered Rate)

5-year Swap rate SAR

The softer stance of the US Federal Reserve has

caused markets to rule out any rate hike throughout

2019. As a consequence, USD rates have gradually

decreased across the entire yield curve. At the short-

end 3-month SAR interest rates remained sticky at

3.0% which translated into a SAIBOR-LIBOR spread

widening most recently. At the longer end of the

yield curve, SAR Swap rates also gradually declined.


30-year maturity Reverse repo rate SAMA

5-year maturity 3-month SAIBOR (Saudi Interbank Offered Rate)

5-year Swap rate USD 3-months US LIBOR (London Interbank Offered Rate)

Interest Rates: Money Market, Capital Market and Central Bank Rates

3-month SAIBOR (Saudi Interbank Offered Rate)

3-month US LIBOR (London Interbank Offered Rate)

Figure 1:

3-Months SAIBOR vs. USD LIBOR

Figure 2:

5-Year Swap Rate SAR vs. USD

Figure 3:

KSA USD-Bonds Yield Spread to US Treasuries

Figure 4:

Central Bank Rate and 3-Months SAIBOR

10-year maturity

SAMA official repo rate

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

02/15 02/16 02/17 02/18 02/190.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

02/15 02/16 02/17 02/18 02/19

0.00

1.00

2.00

3.00

4.00

5.00

6.00

2004 2006 2008 2010 2012 2014 2016 20180.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

11/16 05/17 11/17 05/18 11/18


Page 15


Current account balance, quarterly in bln SAR Foreign workers’ remittances, quarterly in bln SAR

(remittances outflow as part of Current account balance)

The current account surplus further improved in Q3

2018 to 110 bln SAR. This was mainly the result of

higher oil exports. But also foreign workers’ remit-

tances continued to decline since their peak in 2016

as about 1.4 mln expat workers had left the country

since mid-2016. The financial account witnessed a

strong outflow in Q3 2018, largely mitigating the

current account surplus during that period.


Saudi Balance of Payments

Figure 1:

Current Account Balance

Figure 2:

Foreign Workers’ Remittances

Figure 3:

Financial Account Balance

Figure 4:

Contribution to Balance of Payments

Current account balance

Errors & omissions

Financial account balance

Net change in foreign

reserve assets

Financial account balance (excluding changes in foreign

reserve assets), quarterly in bln SAR

(+ capital inflows, - capital outflows)

-100

-50

0

50

100

150

200

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2012 2013 2014 2015 2016 2017 2018

-40

-36

-32

-28

-24

-20

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2012 2013 2014 2015 2016 2017 2018

-125

-100

-75

-50

-25

0

25

50

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2012 2013 2014 2015 2016 2017 2018

-200

-150

-100

-50

0

50

100

150

200

-200

-150

-100

-50

0

50

100

150

200

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2012 2013 2014 2015 2016 2017 2018


Page 16

source: Bloomberg source: Tadawul

Tadawul All-share index Average daily trading value for Tadawul, in mln SAR

TASI showed a strong performance in the first

weeks of the year, appreciating by about 9% until

mid-February. The key driver behind this positive

development have been foreign institutional inves-

tors which were net buyers of Saudi equities to an

amount of 5.4 bln SAR over the first five weeks of

2019. However, overall trading volumes remained

low at about 3.0 bln SAR average daily traded value.

source: Tadawul source: Tadawul

Tadawul: Saudi Equity Market Statistics

10-Week Moving Average

Retail Mutual funds

Institutional DPM Corporates

Government related entities (GRE) Foreign investors total (incl. GCC)

Figure 1:

Tadawul All-Share Index

Figure 2:

Tadawul Total Trading Value

Figure 3:

Weekly Net Purchase by Ownersip (in bln SAR)

Figure 4:

Weekly Net Purchase by Ownersip (in bln SAR)

5000

5500

6000

6500

7000

7500

8000

8500

9000

9500

10000

02/15 02/16 02/17 02/18 02/19

0

1000

2000

3000

4000

5000

6000

01/16 07/16 01/17 07/17 01/18 07/18 01/19

-6

-4

-2

0

2

4

6

8

10

02/17 08/17 02/18 08/18 02/19

in bln SAR

-6

-4

-2

0

2

4

6

8

10

02/17 08/17 02/18 08/18 02/19

in bln SAR


Page 17


TASI quarterly EPS in SAR, l.h.sc

In January 2019, TASI was primarily driven by the

well performing banking sector (+13.5%) which

constitutes about 45% of the overall market. Be-

sides, the food&beverages and the utilities sector

also managed to outperform the index during the

first month of the year. The strong index perfor-

mance has driven trailing and forward valuation mul-

tiples for TASI above their long-term average.


PE ratio TASI, 12-month trailing earnings

Long-term average

TASI 4Q trailing EPS in SAR, r.h.sc.

PE ratio TASI, 12-month forward earnings

Long-term average

Tadawul: Saudi Equity Market Statistics

Figure 1:

Performance TASI Sectors Jan 2019YTD

Figure 2:

Quarterly Earnings TASI

Figure 3:

Valuation TASI: PE-Ratio Trailing

Figure 4:

Valuation TASI: PE-Ratio Forward

Performance in % YTD, including dividends

-1.7-1.7-1.5

-0.60.50.7

1.93.03.13.53.63.7

5.96.3

7.69.0

9.59.5

13.513.813.8

-5 0 5 10 15

EnergyPharma, Bio & LS

Food & Staples RetailingRetailing

REITSHealthcare Equip&Svc

Consumer Durables & App.Insurance

Real EstateMedia

TransportationDiversified Financials

Capital GoodsCommercial & Prof. Svc

MaterialsConsumer Services

TASITelco Services

BanksUtilities

Food & Beverages

250

300

350

400

450

500

550

0

25

50

75

100

125

150

Q4/10 Q4/11 Q4/12 Q4/13 Q4/14 Q4/15 Q4/16 Q4/17 Q4/18

6

8

10

12

14

16

18

20

02/09 02/11 02/13 02/15 02/17 02/198

10

12

14

16

18

20

22

24

26

02/09 02/11 02/13 02/15 02/17 02/19


Page 18

Saudi Economic Outlook

Oil, Inflation and Interest Rates GDP and Fiscal Indicators

source: GASTAT, SAMA, RC source: GASTAT, SAMA, Bloomberg, RC

The Saudi economy recovered in 2018, primarily due

to a strong rebound of the oil sector which had con-

tracted in the year before. For 2019, we expect growth

of the non-oil private sector to further accelerate from

1.7% to 2.2% on the back of an expansionary fiscal

policy pursued by the government throughout this

year. The fiscal deficit will gradually widen to -5.7% of

GDP (after -4.6% in 2018) as in particular oil revenues

will turn out to be somewhat lower than budgeted for

this year. The fiscal deficit will primarily be funded by

a combination of local and global borrowing and, sec-

ondly, by withdrawals from government deposits. We,

therefore, expect sovereign debt to rise to 22.0% of

GDP in 2019.

We forecast an average oil price of 65 USD for Brent in

2019 which is about 9% lower than the average price

in 2018. Saudi oil production is expected to be broadly

unchanged to last year at 10.3 mbd in 2019 with grad-

ually lower output in H1 and an expansion thereafter.

Growth of the oil sector will, therefore, be lower than

last year and is pencilled in at 1.5%. As a consequence

of the reduced oil sector growth contribution, overall

GDP growth will moderately slow down to 1.8% in

2019 after 2.2% in the year before.

CPI inflation is forecasted to drop from 2.5% to 0.3%

this year as the impact of last year’s fiscal reform

measures, notably the VAT introduction and the en-

ergy price increases, will fall out of the observation.

This forecast is based on the assumption that there

won’t be any new fiscal reform measures in 2019

besides the reduction of the VAT sales threshold from

1 mln SAR to 375k SAR which may have a mild infla-

tionary impact in 2019.

We have lowered our FED interest rate policy expec-

tations for 2019 to one single rate hike throughout

the year. As a consequence, we expect the official

repo rate to be raised to 3.25% and forecast the 3M

SAIBOR rate to peak around 3.15%.

The current account surplus is projected to diminish

to 6.2% of GDP after 9.4% in 2018, primarily due to

lower oil export revenues in 2019. The unprecedent-

ed capital inflow expected in the context of the inclu-

sion of Saudi equities in major EM indices, accompa-

nied by a first issuance of international bonds by Ar-

amco, will help to cushion the structural deficit of the

private financial account balance and, combined with

the current account surplus, potentially lead to a con-

siderable balance of payment surplus in 2019.

Facts and Forecasts at a Glance

2014 2015 2016 2017 2018 2019f

Real GDP Growth

Overall economy 3.7 4.1 1.7 -0.7 2.2 1.8

Non-oil Private sector 5.4 3.4 0.1 1.5 1.7 2.2

Government sector 3.7 2.7 0.6 0.7 2.8 1.5

Oil sector 2.1 5.3 3.6 -3.1 2.8 1.5

Fiscal Balance and Government Debt

Fiscal Balance in bln SAR -71 -362 -311 -238 -136 -179

Fiscal Balance in % GDP -2.5 -14.8 -12.9 -9.3 -4.6 -5.7

Government debt in bln SAR 44 142 317 443 560 690

Government debt as % GDP 1.6 5.8 13.1 17.3 19.1 22.0

Trade and Current Account

Trade Balance in bln SAR 690 166 209 382 636 544

Trade Balance in % GDP 24.3 6.8 8.6 14.9 21.7 17.3

Current Account in bln SAR 277 -213 -90 57 275 195

Current Account in % GDP 9.8 -8.7 -3.7 2.2 9.4 6.2

2014 2015 2016 2017 2018 2019f

Oil Prices and Production (yearly average)

Brent price (USD pb) 99.5 53.7 44.1 54.8 71.7 65.0

WTI price (USD pb) 92.9 48.8 43.3 50.9 64.9 57.0

OPEC Basket price (USD pb) 96.2 49.5 40.7 52.4 69.8 63.0

KSA oil production (mln bd) 9.7 10.2 10.5 9.9 10.3 10.3

Inflation and Interest Rates (year end)

CPI Inflation (yearly average) 2.24 1.22 2.05 -0.84 2.47 0.30

3M SAIBOR SAR 0.86 1.55 2.04 1.90 2.98 3.15

Reverse Repo Rate 0.25 0.50 0.75 1.50 2.50 2.75

Official Repo Rate 2.00 2.00 2.00 2.00 3.00 3.25

Tadawul (year end data)

Total Return in % 0.7 -14.6 8.2 3.7 12.1 n.a.

P/E-ratio 18.2 15.9 17.2 17.0 16.1 15.1

P/B-ratio 2.1 1.6 1.7 1.6 1.7 1.8

RoE 11.5 10.2 9.7 9.5 10.8 11.9


Page 19

Disclaimer

The information in this report was compiled in good faith from various public sources believed to be reliable. Whilst all reasonable care has been taken to ensure that the facts stated in this report are accurate and that the forecasts, opinions and expectations contained herein are fair and reasonable, Riyad Capital makes no representa-tions or warranties whatsoever as to the accuracy of the data and information provided and, in particular, Riyad Capital does not represent that the information in this report is complete or free from any error. This report is not, and is not to be construed as, an offer to sell or solicitation of an offer to buy any financial securities. Accordingly, no reliance should be placed on the accuracy, fairness or completeness of the information contained in this report. Riyad Capital accepts no liability whatsoever for any loss arising from any use of this report or its contents, and neither Riyad Capital nor any of its respective directors, officers or employees, shall be in any way responsible for the contents hereof. Riyad Capital or its employees or any of its affiliates may have a financial interest in securities or other assets referred to in this report.

Opinions, forecasts or projections contained in this report represent Riyad Capital's current opinions or judgment as at the date of this report only and are therefore subject to change without notice. There can be no assurance that future results or events will be consistent with any such opinions, forecasts or projections which represent only one possible outcome. Further such opinions, forecasts or projections are subject to certain risks, uncertain-ties and assumptions that have not been verified and future actual results or events could differ materially.

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