The Clap
Al Rajhi Bank‘s (1120) stock has surpassed JPMorgan‘s, thanks to Vision 2030 aiming to diversify the Saudi economy away from oil.
What
Investors see Al Rajhi as a reflection of Saudi Arabia’s ambitious growth plans, according to Bloomberg. It may receive a further boost if the Federal Reserve lowers interest rates.
So What
The bank’s stocks have risen by about 270% since the launch of Vision 2030 by Saudi Crown Prince Mohammed bin Salman eight years ago. This outperformance extends to its peers both within and outside the kingdom during this period.
Even government-backed banks like Saudi Saudi National Bank and Riyad Bank were outstripped. This makes Al Rajhi the largest bank by market value in the Middle East and Africa, at around $95 billion.
Some Context
Central banks in the Gulf region, like the Saudi Central Bank, usually follow Federal Reserve decisions to protect their currencies’ peg to the dollar. The gradual decrease in the U.S. interest rate is expected to benefit Al Rajhi’s profitability and growth. This is because it encourages gathering cheap deposits and allows the bank to issue debt at more attractive levels, according to Bloomberg Intelligence senior analyst Edmond Christou.
Al Rajhi has seen significant growth in the past decade, with its assets nearly tripling. This is a result of increased home ownership in Saudi Arabia through robust mortgage lending. In addition, it focuses on corporate financing with the help of large government projects and the increasing number of expatriates.
Now What
Investors are looking to increase their purchases of the bank’s stocks, expecting future profit improvements. Trading at a multiple of 19.5 times its future earnings, Al Rajhi’s valuation is approaching that of major U.S. technology companies like Alphabet and Meta.
It’s worth noting that Al Rajhi ranks fourteenth in terms of relative weight on the MSCI Emerging Markets Index, which has broad coverage and includes over 1,400 stocks according to Bloomberg data. It’s also the largest stock on the local stock market index Tadawul. Its size has helped attract passive investments, with 13% of the bank owned by foreign investors.
