Transcript CFA Dinner

The Saudi Equity Market:
Challenges & Opportunities
CFA Bahrain Forecast Dinner
January 30th, 2010
Tarek Fadlallah, CFA
Nomura Investment Banking (Middle East) B.S.C. (c)
Performance Review
© Nomura Investment Banking (Middle East) B.S.C.
2
Diversity of Character
© Nomura Investment Banking (Middle East) B.S.C.
3
Monetary Accommodation
© Nomura Investment Banking (Middle East) B.S.C.
4
The Oil Lubricant
© Nomura Investment Banking (Middle East) B.S.C.
5
The Virtuous Circle
Government Policies
High Oil Prices
Deregulation and privatization
High liquidity (public/private)
Economic liberalization (WTO)
Improved fiscal balance
Establishment of industrial zones
Stimulus to petrochemical/energy industries
Localization of workforce
Promotion of tourism
Demographics
Population to grow by 3% per year to 35m by 2015
40% of population is under 15 years old
Approximately 10m foreign residents
© Nomura Investment Banking (Middle East) B.S.C.
Key Sectors
Housing/Construction
Financial Services
Education
Infrastructure/Utility
Healthcare
Tourism
Source: Nomura
6
Economic Forecasts
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
GCC
2008
6.1
6.3
7.8
16.4
4.4
7.4
6.8
Real GDP Growth %
2009
2010
3.0
3.7
-1.5
3.3
4.1
3.8
11.5
18.5
-0.9
4.0
-0.2
2.4
0.9
5.3
2011
4.0
4.4
4.2
13.2
4.3
3.4
5.3
Real GDP (%)
Inflation (%)
Current account Balance (% of GDP)
Fiscal balance (% of GDP)
Saudi Arabia Indicators
2008 2009* 2010
2011
4.5
0.1
4.0
4.1
9.9
4.4
5.0
5.2
29.2
5.5
4.1
9.9
34.1
-3.3
5.0
-3.6
Source: SAMA, NCBC Research, *Provisional numbers from Saudi MOF in 2010
budget
Source: IMF, Oct 2009
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.
© Nomura Investment Banking (Middle East) B.S.C.
7
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
© Nomura Investment Banking (Middle East) B.S.C.
8
Well Diversified
© Nomura Investment Banking (Middle East) B.S.C.
9
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
© Nomura Investment Banking (Middle East) B.S.C.
10
It’s About the Oil
© Nomura Investment Banking (Middle East) B.S.C.
11
Tight Credit
© Nomura Investment Banking (Middle East) B.S.C.
12
End of Multiple Expansion?
© Nomura Investment Banking (Middle East) B.S.C.
13
Mirror Mirror: Wall Street / Tokyo
© Nomura Investment Banking (Middle East) B.S.C.
14
History Lesson
© Nomura Investment Banking (Middle East) B.S.C.
15
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
© Nomura Investment Banking (Middle East) B.S.C.
16
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.
© Nomura Investment Banking (Middle East) B.S.C.
17