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Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back Executive Summary The purpose of this study is to analyze certain market anomalies observed globally that can be exploited to earn higher returns on the equity markets in Saudi Arabia. Some of these anomalies, such as the January effect, are so popular that considerable research has been done to explain them. In addition, many of these anomalies should last for a limited period because as they gain in popularity, the abnormal gains associated with them are arbitraged away. Our findings lead to some strategies that can be used by traders and investors to earn above average market returns. While some of these strategies are based on fundamental factors, others are driven by technical indicators. Below are the key findings of our research: (1) Calendar Anomalies • Index performs best on the first trading day of the week: We have computed the best performing day of the week to be the first trading day of the week in the Saudi market in terms of the number of positive days and aggregate percentage returns. This means an investor looking to sell their holding should always sell on the first trading day of the week. Strategy: An investor looking to sell their holding is better off selling on the first trading day of the week, i.e. Sunday and should avoid buying on that day on average. • Monthly returns vary across sectors: Analysis of the Saudi stock market’s monthly returns over the last decade indicates that all sectors show gains following the Ramadan month, the energy sector gains the most, followed by banking and petrochemical sectors. Strategy: A short-term gain is likely if one invests in the market before the Ramadan period and sells in the subsequent month, and increase positions during the end of March and October, where the TASI always showed the worst performance during these mentioned months and then recovered significantly. (2) Effect of valuation on market performance: The correlation between valuation parameters and stock market performance is strong. Our analysis for the last eight years correlation between P/E and TASI index level indicates that a low PE ratio is usually followed by a significant increase in the index and a high P/E ratio by a muted pace of growth. Strategy: A long-term strategy to make significant gains would be periodic investment in the market when the P/E ratio is below the long-term average. The eight year average in our analysis is 17.1x TTM earnings. (3) Volume indicator at Tops and Bottoms in the market movement: Historically, volume traded on the TASI has been in line with the index trend, i.e. volume increases with a rise in the TASI and decreases as the index corrects. Strategy: Before executing a trade, it is advisable to confirm the trend by gauging the volume traded – enter when the volume traded is trending up with the index and avoid when it is trending down in a declining market. (4) Other technical indicators working in a trending market: From our study of other technical indicators such as RSI and moving average crossover system on the TASI, we can conclude that these indicators work well only when the TASI is trending. Strategy: While the technical indicators work, they have proven to be effective for confirming a trend. Before increasing or reducing exposure to the market, it is wise to confirm the trend using technical analysis such as RSI and Moving Averages. 1 © All rights reserved AGM - Head of Research Analyst Abdullah Alawi Jassim Al-Jubran [email protected] +966 11 2256250 [email protected] +966 11 2256248 Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back Key Themes and Analysis (1) Calendar Anomalies A calendar effect refers to the trend of any market performance or economic effect in a special date/month, which is applicable globally. Some of the anomalies include the distinct performance trend of stock markets on different trading days of the week, different times of the month, and different times of the year (seasonal tendencies). Some of the most popular calendar effects prevalent globally include the weekend, day-of-the-week, turn-of-the-year, and January effects. Day-of-the-Week Effect The day-of-the-week effect indicates that returns vary on different trading days during a week and that some days outperform the others. We analyzed the TASI’s performance on different trading days of the week over the data set from 2009–14 to check if this effect is applicable for Saudi stock market. The Saudi stock market’s trading days were from Saturday to Wednesday (Saturday being the first and Wednesday being the last trading day) until June 2013; thereafter, they changed from Sunday to Thursday. Weekend Effect: The weekend effect refers to the tendency of stock markets to underperform on Mondays (usually the first trading day), suggesting that closing prices on Monday are lower than those on the previous week close price1. The weekend anomaly refers to this phenomenon of returns on Monday being consistently lower than every other day of the week. However, in Saudi Arabia, the TASI’s performance has been an outlier to this trend. The Saudi markets would rise on Sunday (first day of the week), indicating that the closing price of Sunday is higher than that of Thursday (the last trading day). Figure 4: Average TASI Performance on Each Trading Day 80% 30% 70% 25% 20% 15% 50% 10% 40% 5% 30% 0% 20% - 5% 10% - 10% P e rc e n ta g e (% ) P e rc e n ta g e (% ) 60% - 15% 0% 1s t d ay 2nd d ay % 3rd d ay o f P o s itiv e d a y s 4th d ay % 5th d ay A v e ra g e C h a n g e Source: Bloomberg, AlJazira Capital One of the factors driving positive returns on the first trading day in Saudi markets could be related to the fact that around 90% of traders are retail traders in Saudi Arabia, which make trading short term, i.e. not more than a week, especially since the market is long only (short selling is not available). Figure 5: Average TASI Return for the Week No. of Positive Days % of positive Days 1st day 2nd day 3rd day 4th day 5th day 162 122 125 124 144 68.07 50.83 51.87 51.45 60.25 No. of Negative Days % of Negative Days Total Return (%) 76 118 115 117 95 31.93 49.17 47.72 48.55 39.75 63.14 0.89 5.19 -28.24 16.94 Source: Reuters Eikon 1. 2 © All rights reserved Source: investopedia Website - http://www.investopedia.com/terms/w/weekendeffect.asp Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back The first trading day of the week provides the highest total returns at 63.1% for the period of 162 days. Furthermore, the proportion of positive first trading days stood at 68.07%. It is followed by the fifth day (last trading day of the week), with the proportion of positive days at 60.3% despite providing aggregate returns of just 16.9%. In return, the index performs the worst on the fourth trading day of the week, providing returns of -28.2%. Furthermore, the proportion of negative days is 48.6%. The worst performer based on the proportion of negative days (49.17%) is the second trading day (currently Monday, earlier it was Sunday). Conclusion With all other parameters remaining constant, we conclude that the first trading day provides the best returns in the week, on average, in the Saudi stock market, both in terms of number of positive days and aggregate percentage returns. In contrast, the worst performer in terms of aggregate returns is the fourth trading day, while the second day provides negative days for most instances. Month-of-the-Year/Holiday Effect We analyzed monthly market returns over the past 10 years and found that a trend exists, indicating as to which months are more profitable than others in the Saudi stock market. We assessed the monthly returns from 2003–14 to find if there was an apparent difference by month. Our analysis showed the ‘January Effect’ appears to be, in practice, not significantly apparent in the Saudi market. The January Effect refers to the phenomenon where stocks illustrate a trend to perform better than average during the first month of the year. This effect is due to many investors selling a part of their equity portfolio before the end of the year to claim a capital loss for tax purposes1. However, when the tax calendar rolls over to a new year on January 1, these investors reinvest their money in the market, leading to a rise in stock prices. However, as there is no tax on capital gains in Saudi Arabia, this effect is not seen in Saudi Arabia. Figure 6: Average Monthly Tadawul Performance (Past 10 years) 5.0% 4.0% Decem ber Novem ber Augus t - 2.0% October July June May April - 1.0% February 0.0% March 1.0% Septem ber 2.0% January P e rc e n ta g e (% ) 3.0% - 3.0% - 4.0% - 5.0% Source: Bloomberg, AlJazira Capital In the Saudi stock market, the monthly returns in December are the highest at 4.0%, on average, over the past 10 years. Furthermore, the proportion of positive monthly returns in December stood at 63.6%. December is the month when the Saudi government usually comes out with its budget. We believe that, this has acted as a big driver for the index as market expectations for the budget in the past few years has led to the rally in the month of December. April provided the second-best average monthly returns of 3.9%, and the proportion of positive returns stood at 90.9%. Based on our historical analysis (as displayed in the above chart), during the month of October, the market witnesses 10-yr average monthly negative returns of -4.1%, followed by -3.4% in March. in other words, buying towards the end of March and October bares good returns for the investor on the short and medium runs, as market performance is usually negative during these periods, while the market’s best performance is usually during April and December, thus it is considered as good opportunities to exit and avoid entry. . Source: Investopedia Website - http://www.investopedia.com/terms/j/januaryeffect.asp 1 3 © All rights reserved Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back Figure 7: Average Monthly Performance Month January February March April May June July August September October November December % of Positive Months % of Negative Months % Average Change 63.6% 81.8% 27.3% 90.9% 54.5% 54.5% 54.5% 72.7% 54.5% 27.3% 54.5% 63.6% 36.4% 18.2% 72.7% 9.1% 45.5% 45.5% 45.5% 27.3% 45.5% 72.7% 45.5% 36.4% 0.8% 3.6% -3.4% 3.9% 1.8% 2.9% -2.1% 1.2% -0.9% -4.1% 2.6% 4.0% Source: Reuters Eikon To analyze the impact of holidays on the Saudi Stock Exchange, we considered the month of Ramadan. The Ramadan Effect establishes the impact of the holy month of Ramadan on the stock market’s performance. Our study establishes that returns are higher with lower volatility in Muslim countries during the month of Ramadan. We analyzed the data over the past 10 years and found that there is a positive and significant relationship between market movement and Ramadan. In Ramadan, majority of the people follow spiritual principles, with a significant portion of their time being spent on spiritual rituals, along with a change in business hours to accommodate the requirements of the holy month. Figure 8: Ramadan Impact on Tadawul Performance Average One-month Return TASI Banking Petrochemical Cement Retail Energy & Utilities Telecom Building & Const Real Estate Hotel Before Ramadan During Ramadan After Ramadan -0.3% 1.0% -1.2% -1.5% -0.1% -0.2% -2.1% -3.5% -1.7% -2.8% 1.6% 2.8% 0.1% 0.3% 0.3% 1.0% 2.6% -1.4% 0.2% -0.4% 1.2% 3.3% 2.3% -0.1% 0.5% 3.6% 1.2% 1.3% 0.5% 2.2% Source: Reuters Eikon We analyzed the data from 2000–14 for Tadawul (Saudi Stock Exchange) and 2008–14 for sector indices. The table represents onemonth returns of Tadawul and other sector indices before, during, and after the month of Ramadan. Our analysis indicates that the sectoral performances vary for the three periods under analysis: Before Ramadan: In this period, people generally spend more to shop for the upcoming festival. Hence, as per our analysis, more number of people exit the market for money, leading to fall in the indices. Historically, Building & Construction is the worst affected of all as there is less construction during this period. 4 © All rights reserved Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back During Ramadan: Ramadan is a period where the trade volume is generally low as less people invest in the market except Ramadan 2014 when foreign investors decision was made. Hence, most of the sectoral indices are flat. After Ramadan: This is a period where we can see most of the sectoral indices rallying and market dynamics taking over there on. Historically, the Energy sector has been the top performer, followed by banking and petrochemical sectors. Figure 9: Tadawul Performance: Ramadan Impact 20.0% B e fo re D u r in g A fte r 10.0% - 10.0% 400 - 20.0% 300 - 30.0% 200 100 2004 2005 2006 2007 2008 2009 2010 A v e r a g e V o lu m e D u r in g A v e r a g e V o lu m e B e fo r e 2011 2012 2013 A v e r a g e V o lu m e A fte r M illio n S h a r e P e r c e n ta g e (% ) 0.0% 0 2014 Source: Bloomberg, Reuters Eikon (2) Effect of Valuation on Market Performance Valuations tools such as price-to-earnings (PE) multiples are used by investors and analysts to help determine if individual stock/ stock market index is reasonably priced. PE ratio is a ratio of share prices to earnings. The PE ratio of a stock is equal to the price of the share divided by per share earnings of the stock. The PE cycle is dependent on the inflation rate, which leads to loss of purchasing power and erosion of capital, and has an important bearing on the investors. During periods of high inflation, investors want higher returns to offset for potential loss of portfolio value; hence, investors would prefer paying a lower price for future earnings to obtain higher returns from stocks, translating into lower PE. Consequently, a higher inflation period is usually followed by lower PE and declining inflation leads to higher PE for the market2. Figure 10: Actual PE vs. TASI’s Performance P E (x ) T A S I - P o in ts 35 15, 000 30 13, 000 25 11, 000 20 9, 000 17 15 7, 000 10 T A S I P E 7/ 27/ 2014 4/ 27/ 2014 1/ 27/ 2014 7/ 27/ 2013 10/ 27/ 2013 4/ 27/ 2013 1/ 27/ 2013 7/ 27/ 2012 10/ 27/ 2012 4/ 27/ 2012 1/ 27/ 2012 7/ 27/ 2011 10/ 27/ 2011 4/ 27/ 2011 1/ 27/ 2011 7/ 27/ 2010 10/ 27/ 2010 4/ 27/ 2010 1/ 27/ 2010 10/ 27/ 2009 7/ 27/ 2009 4/ 27/ 2009 1/ 27/ 2009 7/ 27/ 2008 10/ 27/ 2008 4/ 27/ 2008 1/ 27/ 2008 7/ 27/ 2007 10/ 27/ 2007 4/ 27/ 2007 1/ 27/ 2007 0 7/ 27/ 2006 3, 000 10/ 27/ 2006 5 4/ 27/ 2006 5, 000 Source: Bloomberg, AlJazira Capital We conducted an analysis of the TASI’s performance and index PE data over the last eight years (due to limited availability of PE data). The stock index PE ratio is computed by considering the average share price of all listed companies, and is divided by the average earnings per share of these companies. The results indicate that a low PE ratio is usually followed by an increase in market performance in the subsequent period and a high PE ratio by slow growth in stock prices. Furthermore, when high PE ratios reduce the earnings yield on stocks relative to returns on other investments, the short-term stock market performance is impacted. Our analysis shows that the average PE for the period under study is 17.13x, and the observed market performance shows a mid-term opportunity to enter when PE is below the average, as the entire market has risen substantially during 2007, 2009 and 2013. However, it was clear that once PE reached 24x, the market has subsequently corrected and encountered a sharp fall in share prices. 5 . Source:Investopedia Website - http://www.investopedia.com/ask/answers/123.asp 2 © All rights reserved Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back (3) Volume indicator at Tops and Bottoms in the market movement: Volume is an important indicator for market fundamentals and indicates if the market fundamentals are supporting the trend. A significant rise in volume coming into the market usually follow the fact that the buyers have become aggressive and have taken up positions with the expectation that the rise would be substantial, eventually, our study show that we are in an accumulative phase, which is typically followed by a profit taking and a price earning of TASI. Figure 11: Volume for TASI (Weekly data) 7.000 6620.75 6.500 6.000 5500 5000 4.500 4000 B A Mar Jun 2009 2B A A Sep Dec B Mar Jun 1B 2010 Sep Dec 360.784M 0 20 Source: Reuters Eikon Figure above shows the TASI’s returns from 2009–10. At point A, volume increases with price and is highest at the top. Thereafter, the index starts correcting. In all three examples of an uptrend in the above chart, volume increases with price. Figure 12: Volume for TASI (Weekly data) 11062.37 10.000 9000 8000 7000 6000 B A A B A 4B 3B 2B 1.042B 2011 2012 2013 2014 0 Source: Bloomberg Figure above depicts the TASI’s returns from 2011–14. At point B, volume decreases as the index corrects and is lowest at the bottom. Moreover, other examples show a similar trend. Conclusion As observed from the two Figures above, volume traded on the TASI is in line with the index trend; it increases with the index and is progressively lower when the index corrects. The highest volume is recorded near the top and the lowest is at the bottom, as observed from points A and B. 6 © All rights reserved Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back (4) Other Technical Indicators RSI on weekly chart: RSI is a momentum indicator that validates the strength of the trend. In addition, it can be used as an overbought/oversold indicator. RSI oscillates between 0 and 100, and is a bounded oscillator. Generally, a reading below 30 is known as an oversold reading and that above 70 is known as an overbought reading. However, one drawback of using this indicator is that it is a lagging indicator. Figure 13: RSI Entry and Exit Points (Weekly data) Buy Signal A F M A M J 1Q 2007 2Q 2007 J 3Q A B S O N D 2007 4Q 2007 J 1Q F J M A M J 2008 2Q 2008 3Q A A u to Buy Signal Sell Signal S O N D 2008 4Q 2008 Z ero L ine J 1Q F M 2009 A 2Q J M 2009 11.000 10.500 10.000 9.500 9.000 8.500 8.000 7.500 7.000 6.500 6.000 5.500 5.000 4.500 4.000 V a lu e S A R 70 60 50 40 30 A u to J 3Q A S O N D 2009 4Q 2009 Source: Reuters Eikon Figure above shows the TASI weekly chart (from 2007–09) with RSI indicator. The red line is the overbought line at 70. The green line is the oversold line at 30. The purple line is drawn at 50. A buy signal is generated when RSI crosses 50 from below and a sell signal is generated when RSI crosses 50 from above. The first buy signal is denoted by A in 2007, from where the market rises until early 2008. The first sell signal is generated at point B when RSI crosses below 50 in the middle of 2008 and continues until early 2009. Figure 14: RSI Entry and Exit Points (Weekly data) P r ic e S A R 10 . 0 0 0 9.500 9.000 8.500 8.000 7.500 7.000 6.500 A J 4Q F M 2010 B A M 1Q 2011 J J 2Q A S O 2011 3Q N D 2011 4Q J F M 2011 1Q A M 2012 J 2Q J A S O 2012 3Q N 2012 4Q D J F M 2012 1Q A M 2013 2Q J J A 2013 3Q J S O 2013 4Q N D 2013 1Q F M 2014 A M 2Q J J 2014 3Q A S 6.000 5.500 A u to V a lu e S A R 6 0 4 0 20 A u to 2014 Source: Reuters Eikon Figure above shows the TASI weekly chart (from 2010–14) with three buy/sell signals. Point A depicts a sell signal when RSI crosses below 50. Similarly, point B indicates a buy signal, with RSI crossing 50 from below. Conclusion Studying the historical RSI data on TASI (data from 2008 until date has been used for the study), we observe 60 entry points, 15 positive trades, and 45 negative trades. The aggregate gain stood at 20,849.35 and the average return per trade is 347.48 points. We conclude that any investor following the RSI method to invest in the TASI would have obtained positive returns on the medium to long term. 7 © All rights reserved Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back Moving averages study A moving average is a smoothed trend line of a predetermined period. It can be used to generate buy and sell signals. A buy signal is generated when the short-term moving average crosses the longer-term average from below. On the other hand, a sell signal is generated when the short-term moving average crosses the longer-term average from above. However, one drawback of using this indicator is that it is a lagging indicator. (we choose daily points to increase the data points in our analysis). Figure 15: Moving Average Crossover (Daily data) P r ic e S A R Sell Signal 9.400 9.300 9.200 9.100 9.000 8.900 8.800 8.700 8.600 8.500 8.400 8.300 8.200 8.100 8.000 7.900 7.800 7.700 7.600 7.500 7.400 7.300 7.200 7.100 7.000 6.900 6.800 6.700 6.600 B Buy Signal Buy Signal A Buy Signal 6.500 29 05 12 19 26 05 12 19 26 02 09 16 23 30 07 14 21 28 04 11 18 25 02 09 16 23 30 06 13 20 27 03 10 17 24 01 08 22 29 05 12 19 26 Feb 2007 Mar 2007 Apr 2007 May 2007 Jun 2007 Jul 2007 Aug 2007 Sep 2007 Oct 2007 V olum e 40M 38M 36M Auto Nov 2007 Source: Reuters Eikon Figure above depicts the daily chart of the TASI with two moving averages, faster moving average (13-day EMA) and slower moving average (21-day EMA). The first buy signal is generated in Feb 2007, shown as point A; the short-term moving average (red) crosses the longer-term moving average (blue) from below. It provides a decent rally before a sell signal is generated in March 2007. The signal is not confirmed until the close of the candle, suggesting that the actual entry would be within the next candle. We have considered the opening of that candle for calculating returns. Daily data from 2007 until date have been used for analysis. Figure below shows some more entry points based on the Moving average cross over system. Figure 16: Moving Average Crossover (Daily data) 11.080 Sell Signal 10.000 Buy Signal Sell Signal 9.000 8.000 Sell Signal Buy Signal 3Q 2012 Buy Signal 7.000 Buy Signal Buy Signal 4Q 2012 6.000 1Q 2013 2Q 2013 3Q 2013 4Q 2013 1Q 2014 2Q 2014 3Q 2014 259.005 M 0.00 Source: Reuters Eikon Conclusion Since 1998, 126 crossovers occurred on the daily chart, with 42 positive trades and 84 negative trades. The failed trades occurred due to a sideways market, as this strategy works well in a trending market. However, this method provides an aggregate return of 13,365 points. The sum of the returns is 228% and rebased return is 551.73% (based to 100). This is a trend following system; hence, it would work better when the TASI is trending in one direction. 8 © All rights reserved Exploiting Market Anomalies in the Saudi Stock Market September 2014 Strategy report Please read Disclaimer on the back Composite Technical Analysis: As evident from the figure below, RSI at point 1 crosses 50-Mark and generates a buy signal, at the same time the smaller moving average (13-day) crosses the longer average (21-day EMA). Thus a buy signal is generated almost simultaneously by the RSI as well as the moving average system. Such signals which are confirmed by multiple indicators are more reliable. Figure 17: Moving Average along with RSI (Daily data) Sell Signal 11.000 10.000 9.824 B 9.318 9.000 Sell Signal Sell Signal Sell Signal Buy Signal A 8.000 Buy Signal Buy Signal 7.000 80 60 2 1 Feb 2007 April 2007 May 2007 Jun 2007 July 2007 Aug 2007 Sep 2007 Oct 2007 Nov 2007 37.673 Dec 2007 Jan 2008 Feb 2008 Mar 2008 Source: Reuters Eikon In the figure below; at point 1 we can see how a sell signal is generated by the moving average system and the RSI system. The volume confirmation is also obtained at the same time, thus giving a better sell signal. Similarly at point 2 and 3, all the three indicators give sell and buy signals at approximately the same time. Figure 18: Moving Average and RSI along with Volume (Daily data) 11.080 Sell Signal 2 10.500 3 10.000 9.500 Buy Signal Sell Signal 1 9.000 8.500 8.000 7.500 Buy Signal 7.000 2 1 80 65.5528 3 1 2 July 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May 2014 Jun 2014 40 20 3 Jul 2014 Aug 2014 0.5 B 277.304 M 0 Source: Reuters Eikon What is the outlook for TASI now? (22/9/2014): Depending on the report’s strategies, the daily charts show that there is a failure of TASI (Tadawul All Share Index) on 21/09/2014 to maintain above the slower moving average (21-day EMA) at 11050 points after drawing a bearish candlestick formation, which demonstrates that the last week rebound was a small bullish wave in a downtrend. However, the moving averages of (13-day EMA) and (21-day EMA) are still in a positive position due to the lagging in this indicator to signal an early exit. Moreover, Daily RSI started to decline in overbought territory and breaking the substantial level of (70) on 15/09/2014, which supports the corrective view, in conjunction with the decline in the trading volumes (lack of buying interest) after reaching their highest levels on 27/08/2014. Daily MACD line is below the signal line suggesting the upside is capped. Hence, traders are advised to be cautious, as the index could continue to correct if it trades below the current level. In the other words, TASI could find support at 10751 and 10498 points, respectively. According to the statistical results of this report, we expect that the end of October may be a good level to open new positions if it coincided with the stated support points and returning of moving averages and volume levels to the constructive side and take your profits later in December. 9 However, the long-term trend could remain positive as long as the index sustains above the moving averages of (13-month EMA) and (21-month EMA). The index is trading above its upward sloping trend line, suggesting long-term bullishness is intact and the possibility of a short-term correction cannot be ruled out. © All rights reserved RESEARCH DIVISION BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION Senior Analyst Analyst Abdullah Alawi Syed Taimure Akhtar Sultan Al Kadi +966 11 2256250 [email protected] +966 11 2256146 [email protected] +966 11 2256374 [email protected] Senior Analyst Analyst Analyst Talha Nazar Saleh Al-Quati Jassim Al-Jubran +966 11 2256115 [email protected] +966 11 2256046 [email protected] +966 11 2256248 [email protected] General manager - brokerage services and sales AGM-Head of international and institutional AGM- Head of Western and Southern Region Investment Centers & ADC Ala’a Al-Yousef brokerage Brokerage +966 11 2256000 [email protected] Luay Jawad Al-Motawa Abdullah Q. Al-Misbani +966 11 2256277 [email protected] +966 12 6618400 [email protected] AGM-Head of Sales And Investment Centers AGM-Head of Qassim & Eastern Province AGM - Head of Institutional Brokerage Central Region Abdullah Al-Rahit Samer Al- Joauni Sultan Ibrahim AL-Mutawa +966 16 3617547 [email protected] +966 1 225 6352 [email protected] +966 11 2256364 [email protected] AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. AlJazira Capital is the continuation of a long success story in the Saudi Tadawul market, having occupied the market leadership position for several years. With an objective to maintain its market leadership position, AlJazira Capital is expanding its brokerage capabilities to offer further value-added services, brokerage across MENA and International markets, as well as offering a full suite of securities business. 1. RATING TERMINOLOGY AGM - Head of Research 2. 3. 4. Overweight: This rating implies that the stock is currently trading at a discount to its 12 months price target. Stocks rated “Overweight” will typically provide an upside potential of over 10% from the current price levels over next twelve months. Underweight: This rating implies that the stock is currently trading at a premium to its 12 months price target. Stocks rated “Underweight” would typically decline by over 10% from the current price levels over next twelve months. Neutral: The rating implies that the stock is trading in the proximate range of its 12 months price target. Stocks rated “Neutral” is expected to stagnate within +/- 10% range from the current price levels over next twelve months. Suspension of rating or rating on hold (SR/RH): This basically implies suspension of a rating pending further analysis of a material change in the fundamentals of the company. Disclaimer The purpose of producing this report is to present a general view on the company/economic sector/economic subject under research, and not to recommend a buy/sell/hold for any security or any other assets. Based on that, this report does not take into consideration the specific financial position of every investor and/or his/her risk appetite in relation to investing in the security or any other assets, and hence, may not be suitable for all clients depending on their financial position and their ability and willingness to undertake risks. It is advised that every potential investor seek professional advice from several sources concerning investment decision and should study the impact of such decisions on his/her financial/legal/tax position and other concerns before getting into such investments or liquidate them partially or fully. The market of stocks, bonds, macroeconomic or microeconomic variables are of a volatile nature and could witness sudden changes without any prior warning, therefore, the investor in securities or other assets might face some unexpected risks and fluctuations. All the information, views and expectations and fair values or target prices contained in this report have been compiled or arrived at by Aljazira Capital from sources believed to be reliable, but Aljazira Capital has not independently verified the contents obtained from these sources and such information may be condensed or incomplete. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this report. Aljazira Capital shall not be liable for any loss as that may arise from the use of this report or its contents or otherwise arising in connection therewith. The past performance of any investment is not an indicator of future performance. Any financial projections, fair value estimates or price targets and statements regarding future prospects contained in this document may not be realized. The value of the security or any other assets or the return from them might increase or decrease. Any change in currency rates may have a positive or negative impact on the value/return on the stock or securities mentioned in the report. The investor might get an amount less than the amount invested in some cases. Some stocks or securities maybe, by nature, of low volume/trades or may become like that unexpectedly in special circumstances and this might increase the risk on the investor. Some fees might be levied on some investments in securities. This report has been written by professional employees in Aljazira Capital, and they undertake that neither them, nor their wives or children hold positions directly in any listed shares or securities contained in this report during the time of publication of this report, however, The authors and/or their wives/children of this document may own securities in funds open to the public that invest in the securities mentioned in this document as part of a diversified portfolio over which they have no discretion. This report has been produced independently and separately by the Research Division at Aljazira Capital and no party (in-house or outside) who might have interest whether direct or indirect have seen the contents of this report before its publishing, except for those whom corporate positions allow them to do so, and/or third-party persons/institutions who signed a non-disclosure agreement with Aljazira Capital. Funds managed by Aljazira Capital and its subsidiaries for third parties may own the securities that are the subject of this document. Aljazira Capital or its subsidiaries may own securities in one or more of the aforementioned companies, and/or indirectly through funds managed by third parties. The Investment Banking division of Aljazira Capital maybe in the process of soliciting or executing fee earning mandates for companies that is either the subject of this document or is mentioned in this document. One or more of Aljazira Capital board members or executive managers could be also a board member or member of the executive management at the company or companies mentioned in this report, or their associated companies. No part of this report may be reproduced whether inside or outside the Kingdom of Saudi Arabia without the written permission of Aljazira Capital. Persons who receive this report should make themselves aware, of and adhere to, any such restrictions. By accepting this report, the recipient agrees to be bound by the foregoing limitations. Asset Management | Brokerage | Corporate Finance | Custody | Advisory Head Office: Madinah Road, Mosadia، P.O. Box: 6277, Jeddah 21442, Saudi Arabia، Tel: 02 6692669 - Fax: 02 669 7761 Aljazira Capital is a Saudi Investment Company licensed by the Capital Market Authority (CMA), license No. 07076-37