(Bloomberg) -- Saudi Arabian shares closed above levels last seen in 2015 as concern about an escalation of geopolitical tensions in the Middle East fades and optimism about rising oil prices and corporate earnings moves to the fore.
The Tadawul All Share Index advanced 1 percent on Monday, finishing above 8,000 points for the first time since August 2015. The gauge rose 1.9 percent on Sunday, the most in 10 months. Concern of a military showdown between the U.S. and Russia in Syria are easing as traders see limited fallout from missile strikes at the weekend.
“Tensions regarding Syria are behind us now, and most analysts are increasing their estimates for oil prices,” said Mazen Alsudairi, head of research at Al Rajhi Capital Co. in Riyadh. Oil is the country’s main export. “Optimism regarding oil prices is reflecting in sentiment, in general.”
Thirty-day historical volatility for Saudi Arabia reached its highest level since August last week following tweets by U.S. President Donald Trump of impending strikes against Syria. Benchmarks in Dubai, Abu Dhabi and Kuwait, which also slumped before the military action, all recovered this week.
Geopolitics has also fueled a rally in oil prices, which hit the highest level since 2014 last week. Citigroup Inc. raised its Brent price forecasts for 2018 and 2019 on Monday to $65 a barrel and $55 a barrel, respectively, due to higher supply risks in Venezuela and Iran.
The Tadawul’s main index is up 11 percent so far this year amid expectations of higher oil prices in the longer term and hopes that MSCI Inc. will announce it will classify the country as an emerging market in June, following a similar decision by FTSE Russell last month. As analysts increase their expectations for corporate earnings, the 12-month estimated price-to-earnings ratio for the gauge rose to the highest level since January 2017.
“Market valuation was shifting gradually to the global average multiple since last November, and investors are expecting growth in earnings because of oil prices and interest hikes during this year,” said Alsudairi, from Al Rajhi Capital. “And billions of inflows are expected to income to the Saudi market from funds after the index inclusion.”
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