Stocks of property companies that Saudi Arabia plans to partner with as it diversifies its economy away from oil soared this week.
Dar Al Arkan Real Estate Development Co. led the advance in Saudi stocks, rising 21 percent in the past five days to the strongest level since January as of the close in Riyadh. While the gains sent the company’s valuation to almost 15 times its estimated earnings, the highest since November 2014, it’s still less than half that of the Tadawul All Share Real Estate Index.
The company, along with Emaar Economic City, were among those mentioned in the National Transformation Program, Saudi Arabia’s biggest ever economic shake-up. The real estate index’s 6.4 percent gain this week was the steepest among the exchange’s 15 industry gauges. The benchmark Tadawul All Share Index advanced 1.8 percent.
Investors have been waiting for clues from the government on who will benefit from the kingdom’s post-oil plans. The Arab world’s largest economy is seeking to reduce its reliance on energy revenue after a slump in crude prices strained its finances and forced the government to tap the bond market last year for the first time since 2007. Officials are planning to slash subsidy spending, cut public sector wages and are studying taxing foreign workers.
"We’re definitely seeing some value buying of Dar Al Arkan,” said Harshjit Oza, a Cairo-based property stocks analyst at Naeem Brokerage. “Saudi Arabia’s demographics point to a significant population of young people who are expected to boost demand for real estate as the country cuts its dependence on oil.”
Traders exchanged 779 million riyals ($208 million) of Dar Al Arkan shares on Thursday, almost six times the stock’s daily average over the past year. Emaar Economic City’s stock price jumped 10 percent this week.
“Investors feel more comfortable this week buying Saudi Arabia because oil is trading higher,” Oza said. “Either way, real estate companies win.”