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We observed that the Ramadan has a pronounced impact on the Saudi stock market as measured by its all-share index TASI, when we analyzed past eight years’ stock market data.
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Ramadan - The Impact on Saudi Stock Market
June 26, 2015
Pressure on TASI levels and volumes in build-up to Ramadan
Rishiraj Agarwal, Manager - Investment Research
Prahlad Bhanushali, Analyst - Investment Research
We observed that the Ramadan has a pronounced impact on the Saudi stock market as measured by its
all-share index TASI, when we analyzed past eight years stock market data. The index levels and volumes
generally follow a downtrend trend in the run-up to Ramadan as well as in the initial two weeks of the
holy month. We believe this is because of two key reasons: 1) retail investors, who participate in the stock
market in majority, liquidate holdings to meet additional expenses incurred during the festival, and 2)
other investors expect share prices to decline along with depressed volumes and, thus, try to realize gains
The volume of shares traded begins to decline at least a month prior to Ramadan. During the month,
average volumes remain at the lowest annual level or approximately 40% below the annual average. After
the third week, volumes begin to turn up gradually. We attribute this to investors looking to build
positions in anticipation of a rise in TASI levels along with a general pick-up in trading activity following
the long holiday. Interestingly, average volumes rose ~38% in the four weeks following Ramadan
compared with the average volume during the month.
We observe a similar pattern in TASI levels due to the Ramadan effect. On average, the index declines
0.6% between the two weeks prior to Ramadan and the first week of the festival. Thereafter, it generally
remains flat in the following two weeks, before picking up an average 2.9% in the fourth week.
However, the previous three years reported a positive bias where average volumes were flat-to-up during
the holy month. In 2012, 2013 and 2014, the Ramadan pattern was distorted due to positive spillover
effect of approval of the long-pending mortgage law, overall positive earnings season and announcement
of Saudi market opening to QFI, respectively.
Sectors positively impacted during Ramadan
1. Food sector: Food and Agriculture sector gains an average 6% during the festival which we
believe is led by higher consumption of staples in the run-up to Ramadan as well as during the
holy month. Almarai, the heavyweight, is up on average 6% as a significant 33% of its annual
earnings come from quarter in which Ramadan falls. Savola, another heavyweight, is also up 10%
on average as Ramadan and Hajj generates sizeable sales/earnings for the company.
2. Retail sector: Retail stocks report strong performance during the holy month generally due to
higher discretionary spending, with the sector on average gaining 4% during this period. Retail
heavyweight Al Hokair is up on average 10% as Ramadan is their main business season and the
corresponding quarter generates a significant 40% of the total annual earnings.
3. Hotel & Tourism: Additionally, the Hotel and Tourism sector increases an average 4% during the
month of Ramadan, with an increase in domestic demand as well as a higher number of
international visitors driving up occupancy in hotels.
Sectors negatively impacted during Ramadan
1. Banking: The Banking sector generally remains flat due to fewer working hours, a decline in
demand for loans as well a lull in the market trading activity.
2. Construction: Construction sectors record a subdued performance during the month of Ramadan
as most construction companies generally suspend work due to curtailed working hours as per
the labor policy.
3. Cement: The spillover effect of subdued construction activity is felt across the cement sector,
where average monthly sales volume dips by 32% during Ramadan i.e. 2.8 mn tons as compared
with yearly average of 4.1 mn tons.
Technical View: Suggest a likely bounce back in near-term
The TASI traded with negative bias to end the day 0.74% lower at 9,275.27. As seen from the daily charts,
the index has been retracing the previous uptrend over the past few days. Currently, it is approaching the
50% (9,190) and 61.8% (9,028) retracement levels. Hence, the ongoing correction would halt and market
could consolidate near support levels, with likely short-term recovery. Hence, buying could emerge at
those levels. Furthermore, RSI is approaching oversold zone, suggesting limited scope for downside.
Considering technical studies, we are of opinion that the pullback in next few days cannot be ruled out.
The next area of resistance is around 9,550 and 9,770.
On analyzing the performance of the TASI on an extended time frame, we found it declined in December
2014 and posted a low of 7,225.83. Eventually, the index found support near the 50% retracement level of
4,068 & 11,159.50. Since, then it is trading above the said level. Monthly MACD line is hovering above the
zero line suggesting medium-term trend to be positive. In addition, on the weekly charts, we are
witnessing that the index is making higher high and higher lows. Hence, the medium-term trend will
remain upward unless we get the close below the swing low of 8,700. Considering the extended
timeframe, we believe buying could emerge at support levels.
TASI TREND DURING RAMADAN:
Key historical trends in Ramadan for TASI:
1. Decline over a few days before the start of the month of Ramadan
2. Continued to decline during the initials days of the month of Ramadan: TASI extended losses
during the initials days. Sideways trend observed in the middle of the month
3. Buying emerged during the last few days of Ramadan
4. Downtrend reversed during the month of Ramadan and the index traded with positive bias ahead
5. Continued rise was witnessed during the initial days of the of the post Ramadan
Considering the historical trends, we are of the opinion that the short-term reversal of the current
downtrend would take place in the month of Ramadan. The index would trade with positive bias post
Ramadan.
Ramadan trading pattern in 2015 to follow historical trends
We believe the activity in 2015 witnessed so far in the weeks prior to Ramadan is in-line with the historical
pattern observed with volumes as well as the TASI showing a declining trend. Moving ahead, we expect
trading pattern to follow normal historical trends seen during Ramadan. As such, we expect trading activity
to gain momentum as we enter the third week of Ramadan when we believe TASI will likely report surge in
index levels as well as volumes. This trend is further supported by the technical analysis as above, suggesting
a near-term rise in TASI levels.