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Saudi market opening can end ‘oil only’ story, says T Rowe star

Saudi market opening can end ‘oil only’ story, says T Rowe star

The opening of the Saudi Arabian market can help the country further push away from the international belief it is only a play on its oil-rich image, T Rowe Price’s Oliver Bell has said.

Citywire A-rated Bell made the comments in an investor update for the T Rowe Price Africa & Middle East fund.

His comments coincide with the Saudi market announcing on June 15 it had formally opened its stock exchange to foreign traders for the first time.

Bell said, while many investors will set their sights on accessing the country’s world famous oil and gas sector, the reality means the prime investment areas lie elsewhere and the Saudi government is aware of this.

‘For a number of years, Saudi Arabia has embarked on an ambitious investment plan in order to diversify the economy away from oil revenues and create employment for its very young population – of which more than 50% are under 20 years old,’ Bell said.

‘Our regular investment trips confirm the speed at which the landscape is transforming – with new universities, new financial districts, new ports, new airports and of course the world’s largest tower all being built.

Investment attraction

T Rowe Price has been investing in Saudi Arabia, via swaps, since 2006 and it currently makes up 26% of its Africa and Middle East strategy and 9% of its Frontier markets strategy. Bell stressed this is across a diverse range of sector.

‘There are 168 listed companies covering 15 industries in Saudi Arabia – from petrochemicals, banks, telecoms, hospital groups, education and travel companies. The notable exception is oil, which remains state controlled,’ he said.

He believes one major attraction for global investors is the liquidity of the market, which can trade up to $4 billion a day.

‘Up until now non-resident foreigners, through swaps, only make up 1% of the market in terms of both value traded and percentage held. This is compared to 64% ownership in Turkey and 30% in Brazil or South Korea,’ he said.

Index inclusion not before 2018

However, there are a number of obstacles before Saudi Arabia can enter any MSCI index, Bell said, notably around number of days after a trade when it must be settled, known as T+0.

‘These are the T+0 settlement, at least initially, and an expected minimum assets under management requirement for any foreign investor to be allowed to invest directly,’ he said.

He said these issues are likely to be overcome in due course. ‘The lead time towards inclusion in the MSCI Emerging Markets index can be relatively long, and as it is unlikely to happen for Saudi Arabia before 2018.’

Over the past three years to May 2015, the T. Rowe Price Africa & Middle East fund returned 56.1% in US dollar terms. This is while its Citywire benchmark, the S&P Pan Arab Composite TR, rose 41.2%.

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