Saudi Arabian banks could be an overlooked winner from rate rises in the US and investors should position now for gains, Citywire A-rated Oliver Bell has said.
Speaking to Citywire Global, Bell, who runs the T Rowe Africa & Middle East Equity fund, said the benefit for the MENA nation has not been widely communicated to the market.
His comments come shortly after Federal Reserve chair Janet Yellen gave a clear sign to Congress that the central bank would favour a 2015 rise.
‘The Saudi banks are very positively geared to a rising US interest rate because of a pegged currency. Their margins could increase significantly if we get a sustained increasing rate cycle,’ Bell said.
‘A 1% move in US interest rates, which will be copied into Saudi interest rates can add 10% to the earnings of the banks. There are very few countries globally that are positively geared to a rising dollar and rising US interest rates.’
Currently, financials make up 41.7% of the fund, with Samba Financials the second largest holding at 4.1% and Banque Saudi Fransi accounting for 2.8%.
Bell said, in the long term, corporate credit growth was something investors should be exposed to along with government bonds.
‘These are deposit taking franchises that either lend into the economy or buy government bonds. This is an opportunity for them to invest in something that gives them a yield,' he added.
Away from the financial sector, Bell holds 2.1% in Al Mouwasat Medical Services and believes healthcare is a growth area.
‘The health budget in the latest budget was up 48% to about $45 billion a year. There are hospital groups you can invest in that are beneficiaries of increasing health spend and they are increasing their hospital capacity.’
Meanwhile, religious tourism is also viewed as possessing expansion potential, here Bell has a small holding in Al Tayyar Travel Group.
‘They are trebling the capacity of Mecca, which is going to increase the number of people coming in for religious tourism. There are companies benefitting from the expected influx of people. Airlines and the service industries into the airlines are some of the themes we are playing.’
The T Rowe Middle East & Africa Equity fund returned 55.4% in US dollar terms over the three years to the end of June 2015. Its Citywire-assigned benchmark, the S&P Pan Arab Composite TR, rose 39.8%.