The ongoing shift in the Hijri calendar against the Gregorian calendar means that normal patterns of pre-Ramadan trading will probably be distorted by the second quarter results, but the trading pattern during and immediately after the month should hold.
A decline over the week before Ramadan: We think this is caused by a combination of investors selling shares to raise money to cover high spending during the month and other investors realizing gains in anticipation of a fall in share prices during Ramadan.
A further fall over the first three weeks of Ramadan: This is probably the result of the same factors that cause the fall in the run-up to Ramadan in addition to investors paying less attention to the market, and therefore investing less, as the month progresses.
A revival in the final week of Ramadan: This move appears to reflect investor buoyancy over the outlook for the post-holiday period.
A consistnt pick up in the weeks following Eid al-Fitr: This is likely to be due to an improvement in investor sentiment stimulated by the revival of trading and of broader activity within the economy following the lull during Ramadan.
Performance by sector was also in line with the historical pattern. Owing to the reclassification of TASI components in mid-2007, we only have enough data to determine a trend for four of the 15 sectors of the TASI. In each case the moves during Ramadan 2010 were in line with the average performance over the previous 10 years. Banks and telecoms both rose faster during Ramadan than on average.
In the case of the former this is because Ramadan is the time of peak spending, which is often funded by borrowing. For telecoms, the influx of foreign pilgrims during Ramadan generates exceptional roaming revenues. The underperformance of cement may be due to much lower sales, as far less construction can take place given shorter working days and fasting workers (this also affects the building and construction sector). The reason for the downturn in the insurance sector is unclear.
Banks and telecoms were among the three sectors that outperformed the 0.7 percent gain in the TASI over the course of Ramadan last year. The other was industrial investment, which is little impacted by Ramadan. Of the remaining sectors that would logically be influenced by Ramadan, agriculture and food was up, which is to be expected during the time of peak food consumption. Retail and hotels were flat, even though Ramadan is a time of high consumer spending and peak hotel occupancy and room rates in Mecca and Medina.
We see no reason why the seasonal trends outlined above should not be repeated this Ramadan, which starts on August 1. While local retail investors continue to dominate stock market trading, the influence of the changes to life during Ramadan cannot fail to impact on share price movements. Whether the full seasonal pattern is maintained over future years will be influenced by the timing of school holidays. As Ramadan moves earlier in the year, it will soon be possible for Saudis to take their main summer vacations after Ramadan and before the schools restart, which would probably dampen the revival in the market that has generally occurred after Eid al-Fitr.
Of course, international events impact on stock market performance throughout the year, and Ramadan is no different. The collapse of Lehman Brothers in 2008, which dramatically intensified the global financial crisis, occurred during Ramadan. One potential risk this Ramadan is the market reaction if the US fails to reach an agreement on extending its debt ceiling by August 2, after which it would be unable to honor all its debts.
Concerns about Eurozone debt, which have recently pushed the TASI down recently despite encouraging second quarter results, should ease over the near terms following the agreement of another debt restructuring for Greece. Major moves in global markets would outweigh the impact of the seasonal pattern around Ramadan on the Saudi stock market. For the latest updates PRESS CTR + D or visit Stock Market news Today
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