from another forum...comments?
Default Saudi revaluation -expected effects on its stock market
http://www.business24-7.ae/articles/...udibourse.aspx
This should settle the issue if stockholders feel affects of revaluation but also how revaluation affects other financial indicators. I saved my remarks for the end
“If there were a change in the currency, the impact on the stock market would be as follows: after an initial bounce, we think a revaluation would have a negative impact, as it makes investment in foreign markets relatively cheaper,” it said.
“Listed companies that import would benefit from a revaluation; those that have foreign earnings may lose out… as rising inflation is eroding consumers’ disposable incomes and generating uncertainty for local companies, it is likely that the Tadawul All-Share Index (TASI) would jump in the event of a revaluation.
“After this immediate euphoria has evaporated, there is likely to be an outflow of funds. This is because reducing the number of riyals necessary to buy a unit of foreign currency makes investment in foreign currency denominated assets more attractive,” it said.
The study about Saudi Arabia’s economy and possible currency revaluation said a 15 per cent appreciation of the riyal against the dollar would make the riyal price of shares listed on US markets 15 per cent cheaper.
Some foreign investors may also choose to exit the Saudi market after making a one-off exchange rate gain from the revaluation, the study added.
Jadwa ruled out an imminent revaluation of the riyal but said any appreciation in its value against the dollar in the future would benefit the firms and sectors that import from foreign markets as the revaluation would lower the cost of their imports.
It expected those importers to increase their profit margins although they will come under pressure to pass on the impact of a revaluation to final consumers.
“Retail and transport are the most import-dependant sectors on the Tadawul. Companies undergoing major expansion programmes where the necessary technology comes from abroad, but final product is sold domestically, should also benefit. These include telecoms and real estate.
“Performance of all companies with foreign earnings will worsen in the event of a revaluation, as these earnings will be worth less when converted into riyals and recorded in their financial statements,” the study said.
It said sectors focused on exporting, such as petrochemicals and some manufacturers from the investment, construction and agricultural sectors, would be most affected. In addition, travel agents and other companies reliant on foreign spending would be hit.
“A revaluation would lower the value of commercial bank foreign assets and raise the value of foreign liabilities in addition to lowering the value of returns on foreign investment when reported in riyals. Insurance firms would see a similar impact on their balance sheets, as would investment companies with large foreign holdings,” it said.
“The energy and utilities, cement and agricultural sectors would be little affected by any revaluation of the riyal as the bulk of their inputs (power, limestone, water and labour) are sourced from within the Kingdom and their output is consumed domestically.”
According to the report, foreign banks have largely increased their riyal-denominated deposits with Saudi banks in anticipation of a revaluation decision.
“But speculation of a revaluation, which heightened during 2007 and early 2008, has not prompted any measures by Saudi Arabia’s commercial banks to cut their foreign assets.”
The above tells us alot
1) Most importantly, Investors benefit from the revaluation exchange
2) Further appreciation greatly benefits importers
3) Companies with foreign earnings financials are negatively affected
- With the dinar not international, I expect this to be a very small number, if any, of listed companies.
Definately a benefit to RV before going intl.
4) runup then bounce back market growth. This would be expected.
*The bourse is still small enough that the gains from economic growth would still follow and the fall back.
5) Outflow of capital- expected but it will be interesting to see if the rumor of additional bump to investors to keep funds in market bears fruit
6)Signs Saudi moving foreign funds may indicate rv around corner to protect these foreign assets.
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"currencies rarely trade on economics alone" Daniel Hanna -REGIONAL ECONOMIST FOR THE MIDDLE EAST
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Not being a doctor of any sorts, but is it not true that a deathly ill, or a just sick person, and of course a recoverying person react differently to the same medicine,even adversely to it in many cases?
Maceman
Which patient is iraq?
