T. Rowe Buys Saudi Shares After Retreat on Outlook, Touts Egypt

Saudi Arabian banking and consumer stocks offer a buying opportunity after this month’s drops, due to succession concerns, were overdone given the nation’s growth outlook, T. Rowe Price Group Inc.’s regional fund manager said.

Speculation about the status of King Abdullah’s health, along with Middle East political tension in Syria and Iran, were behind selling on the Tadawul All Share Index in all but two of the last 13 trading days, Oliver Bell, who manages $312 million in Africa & Middle East Funds at T. Rowe Price, said in an e-mailed response to questions today.

The Tadawul’s 3.6 percent drop this month has trimmed its 2012 advance to 2 percent, compared with a gain of 17 percent for Dubai’s DFM General Index. Selling has taken place even as the kingdom’s investment plans, valued at more than $500 billion, have spurred economic growth, bank lending and consumer demand in the world’s largest oil exporter, which is home to 28 million people. Shares rose 0.4 percent at the close in Riyadh.

“The stock market is not reflecting the fundamentals of the country and in particular of the banks and consumer companies,” said Bell. “We are buying into this weakness.”

The largest Arab economy is set to grow 5.1 percent this year, the second-fastest pace in the Gulf Cooperation Council after Qatar, according to the median forecast of 15 economists compiled by Bloomberg. Loan growth to private businesses rose to 15 percent in September, the fastest pace in more than three years. Banks in the kingdom trade at a price-to-earnings ratio of 11.3 times, compared with 13.6 times for the main index.

The Tadawul All Share Retail Industries Index trades at 13.8 times estimated earnings, compared with 25 times for the MSCI Emerging Markets/Consumer Staples Index.

Egypt Optimism

“It is clear that structural growth is ongoing,” Bell said. King Abdullah bin Abdulaziz underwent back surgery on Nov. 17, which the government said was successful. The stock market has weakened since then as the spotlight turned to the nation’s political succession. “The succession, when it happens, will be a lot smoother than many expect,” Bell said.

Investors can also find opportunities to buy Egyptian shares after the benchmark index tumbled 9.6 percent yesterday as clashes broke out between supporters and opponents of President Mohamed Mursi’s move to place his decisions above judicial review. Shares rose 2.6 percent today as political leaders sought to resolve the crisis.

Developments in the North African country don’t represent a “show of true colors,” Bell said. Egypt’s shares have rallied 39 percent this year as the nation’s new government secured foreign aid from Qatar and Turkey, and reached an initial agreement with the International Monetary Fund Nov. 20 for a loan of as much as $4.8 billion.

“We remain cautiously optimistic given the obvious wide support internationally that has been displayed and see further weakness as a buying opportunity,” Bell said.

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