The Saudi stock market will see more gains in 2011 after outperforming most Gulf markets this year as companies benefit from high oil prices, a record budget and global recovery, analysts and investors said.

The biggest Arab bourse has risen some 8 percent this year and investors see more gains next year as oil prices hover around $90, while the top Opec exporter is rolling out a $400 billion stimulus, the world's biggest relative to GDP.

On Monday, the kingdom said it would spend $155 billion in 2011, mainly on education and infrastructure.

The main benchmark could hit 7,000 points within two months, said Youssef Kassantini, chief executive at Bourse Experts, citing a stock market correlation of about 74 percent with oil prices. It closed Wednesday at 6,610.

'The investment environment will help as Saudi's record budget and spending should act as a catalyst to TASI,' he said.

Saudi's stock market benchmark would reach 7,000-7,100 in the first quarter of 2011 and top 9,000 by the end of the year, said Mohamed El Aasar, chief technical analyst at EFG-Hermes.

'The Saudi stock market is well positioned to harvest good gains, especially from petrochemicals, banks and telecoms, and should fare well in 2011,' Kassantini said.   

Despite a 5 percent gain in the banking index, some banking shares are still cheaper than peers in the Gulf.

Riyad Bank has a price-to-earnings (PE) ratio of 13.4, while Samba Financial Group trades at 12.3 times 2010 earnings, according to Thomson Reuters data. National Bank of Kuwait has a PE ratio of 15.9.   

'The index will fare better (in 2011) as banks recover ... Banking will be among the sectors investors bet on during 2011,' said Turki Fadaak, financial analyst and member of the Saudi Economic Association, a semi-official think-tank.

The banking index, which ended Wednesday at 16,524, could hit 16,900 in the first quarter of next year and see a 10 percent rise by end-2011, said Aasar.

With oil prices expected to stay high, the petrochemical sector should also be a strong performer in 2011, analysts said. Jumping 21 percent this year the petrochemical index -- whose biggest stock is Saudi Basic Industries Corp (Sabic) -- might gain 25-30 percent next year, they said. It ended Wednesday at 6,506.  

'(Petrochemicals) should target 6,720 points in the first quarter and end 2011 at 8,400-8,500 points,' Aasar said. -Reuters