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Saudi Aramco IPO Can the crown prince deliver?

The potential IPO of Aramco offers investors the chance of gaining exposure to an oil giant sitting on vast reserves. However, exposure to Aramco means exposure to the Saudi state, with which the company is tightly entwined. The IPO is the cornerstone of Saudi Crown Prince Mohammed bin Salman’s plan to ‘rewire’ the country, so a bet on Aramco is a bet on his ability to deliver McKinsey-inspired economic reforms in a country that faces many challenges. Conditions for a listing look near perfect, with stock markets close to record highs, the oil price at a cyclical high and the electric vehicle revolution perhaps hinting that peak demand could be close. The IPO has been delayed, but we argue that reflects a desire to find the right investors rather than the right price.

  • McKinsey report laid the foundations
  • Aramco is too big to value
  • Too many "ifs" and "buts"

Martin Jansson

Strategist

Commodities

nija03@handelsbanken.se

Latest analyses

2018-04-11

Saudi Aramco IPO

2018-03-23

Commodity Bulletin

2018-03-23

Råvaruplanket

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Swedish Rate Wrap — September remains in play

Following January's low inflation, the CPIF ended up being marginally closer to the Riksbank's February forecast. We expect inflation to rise in March and the Riksbank's forecast error should completely disappear over the next couple of months. Although the market was disappointed following the January shock, we believe it is warranted to expect a continued rise in inflation ahead.

The market only sees a 35 percent probability of a rate hike in September, but we still believe September remains in play. Consequently, short-term yields should rise and the narrowing of the spread toward Germany should be reversed.

Kiran Sakaria, Junior Strategist | kisa02@handelsbanken.se

FI Comment — Kommuninvest introduces 2311

  1. Kommuninvest will introduce 2311
  2. Coupon of 1%; ISIN SE0010948240
  3. Pricing at 10 bp over SEK IRS, matched maturity

Kiran Sakaria, Junior Strategist | kisa02@handelsbanken.se

FX Pilot — NOK to continue to strengthen at a slow but steady pace

The NOK has managed to hold on to most of its gains since the beginning of 2018, despite the increased risk-off sentiment seen since late January. The backdrop is an improved economic outlook, which was confirmed by Norges Bank's latest Regional Network Survey, which was mainly conducted in January. We do not think the modernised regulation on monetary policy from the Ministry of Finance, which set the inflation target at 2 percent (previously 2.5 percent), should have any short-term impact on NOK rates and the NOK exchange rate. The FX market has not agreed with our views in terms of EURUSD and EURSEK, and we therefore revise our forecasts for these currency pairs. We recognise the fact that the prospects for Swedish inflation worsened after the January reading and the probability of a rate hike from the Riksbank in September has decreased. We therefore raise our forecast for EURSEK. When it comes to EURUSD, we still await the effects of the tax reform and expect it to fall, but at the same time, we face the reality of it being too far off our forecast.

Nils Kristian Knudsen, Strategist | nikn02@handelsbanken.no

Swedish Rate Wrap — Headwinds mounting at the Riksbank

As we know, bad news tends not to travel alone. The inflation surprise in January was followed by weaker unit labour costs and continued low wage growth. The market's conclusion is that a repo rate hike will not come until December at the earliest. In this edition of the Swedish Rate Wrap, we review what would have to happen for our forecast of a repo rate hike in September to materialise.

Overall, there is a substantial risk that the Riksbank will ultimately be forced to lower its repo rate path in conjunction with its meeting on April 25, and thus signal a repo rate hike later than in September. However, the fact that the Riksbank opted not to revise its repo rate path in February, despite a lower inflation forecast, indicates a certain willingness to start raising the repo rate.

Claes Måhlén, Chief Strategist | clma02@handelsbanken.se

FI Comment — Monthly index rebalancing preview

  1. No new bonds included
  2. Komuninvest 1903 and Swedish government bond 1052 excluded
  3. Indices will rebalance 2018-03-07

Kiran Sakaria, Junior Strategist | kisa02@handelsbanken.se