The indexer MSCI has compiled a Saudi Arabian benchmark equities gauge for international investors to use when the country allows foreigners to trade next month.
But the uptake may be slow given that valuations are high, the political risks have become more elevated because of the conflict in Yemen and crude oil, the driver of the country’s economy, has lost nearly half its value since the slide that began last year.
“We believe that the Saudi equity market is somewhat expensive at present and would prefer to wait for a setback of 10 per cent before advising clients to add to their positions,” said Gary Dugan, National Bank of Abu Dhabi’s global wealth chief investment officer and head of investment strategy.
Saudi stocks trade at price-to-earnings ratio, a measure of value, of 20.2 compared to the 14.5 p/e ratio of the MSCI Emerging Market stock index. Typically the higher the ratio, the more expensive the equity is deemed to be.
The benchmark Tadawul index has gained 16 per cent this year, making it the best performing index in the Middle East. Still, despite the optimism this has engendered among local Saudi investors, the IMF is predicting that economic growth will slow to 2.7 per cent next year from 3 per cent this year after oil fell 48 per cent last year.
Yet despite the oil fall, the economies of the region will survive because spending is not being reduced and steady oil prices over the past couple of years have boosted cash reserves. The net current account surplus of the region stands at about $2.4tn, according to economist estimates.
In December, Saudi Arabia kept to its pledge to maintain spending this year. After the plunge in oil prices, officials said that its revenue was projected to fall to 715 billion riyals (Dh700.2bn) this year, from 1.04 trillion riyals last year. Riyadh projects this year’s expenditure to be about 860bn riyals.
“You are talking ab++out what remains one of largest closed markets in the world,” said Robert Ansari, the regional head of MSCI. “There is demand from emerging market investors to have access to the Saudi market, which has to all intents and purposes been closed.”
Mr Ansari said that if MSCI were to classify Saudi Arabia, the most likely classification would be as an emerging market, and that the earliest that could happen would be June 2017.
The move to open Saudi Arabia’s stock market to foreign investors could attract as much as $40bn of foreign cash into the $478bn exchange, the British asset management company Schroders said last July.
The companies to be included in the MSCI Saudi Arabia Index are:
• Al Rajhi Banking & Inv
• Al Tayyar Travel Group
• Alinma Bank
• Almarai Co
• Arab National Bank
• Banque Saudi Fransi
• Etihad Etisalat Co
• Fawaz Abdulaziz Alhokair
• National Comm Bank
• Rabigh Refining & Petro
• Riyad Bank
• Samba Financial Group
• Saudi Arab Fertilizer
• Saudi Arabian Mining Co
• Saudi Basic Ind Corp
• Saudi Electricity Co
• Saudi Telecom Co
• Savola
• Yanbu Natl Petrochemical
The companies to be included in the MSCI Saudi Arabia Small Cap Index are:
• Abdul Mohsen Al‐Hokair
• Abdullah Al Othaim Mkt
• Advanced Petrochemicals
• Al Abdullatif Indl Inv
• Al Hammadi Development
• Al Jouf Cement
• Al Mouwasat Medical Svcs
• Al‐Hassan G.i. Shaker Co
• Arabian Cement (Sa)
• Arriyadh Construction
• Aseer
• Astra Industrial Group
• Bawan
• Bupa Arabia For Copr Ins
• City Cement
• Co For Cooperative Ins
• Dallah Healthcare Hldg
• Dur Hospitality
• Eastern Province Cement
• Hail Cement
• Herfy Food Services
• Mediterranean & Gulf Ins
• Najran Cement
• National Agri Dev (The)
• National Medical Care
• Northern Region Cement
• Red Sea Housing Svcs Co
• Saudi Ceramic
• Saudi Chemical Co
• Saudi Dairy & Foodstuff
• Saudi Marketing
• Saudi Pharmaceutical Ind
• Saudi Public Transport
• Saudi Real Estate Co
• Tabuk Cement Co
• The Qassim Cement Co
• United Electronics
• United Intl Transport
• Zamil Industrial Inv
mkassem@thenational.ae
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