Nomura Asset Management, the Japanese money manager with $450 billion of assets under management, is bullish on long-term investment prospects in Arabian Gulf markets, especially Saudi Arabian stocks as Arab World’s biggest economy pushes ahead with reforms and open up more sectors to foreign investors.
There are opportunities in GCC markets including the UAE, Bahrain and Oman, however growth sectors in Saudi Arabia particularly interest Tarek Fadlallah, Nomura’s Middle East chief executive. He is upbeat about the potential of petrochemicals and banking sectors.
"The long term story in Saudi Arabia is very exciting. It's a real economy and there are sectors like Petrochemicals which are very competitive globally," Mr Fadlallah told The National on the sidelines of Mena Investment Congress.
Petrochemicals sector in the long term will continue to do well, despite the price of feedstock increasing recently, he said. Further drastic increases in prices are not expected as the kingdom would not want to take lower cost advantage from its players on global stage.
Nomura, which has fifty per cent of its regional portfolio allocated to Saudi Arabia, may see allocations from its global portfolio to banks in the kingdom rise, if the country is upgraded by global index compiler MSCI to emerging market status. MSCI, whose emerging market benchmark gauge is tracked by investors with $1.7 trillion in assets, is due to announce its decision in June this year and if Saudi received a nod, it will start trading as an emerging market a year following the designation.
“We don’t make big bets in terms of allocations to markets…Saudi is about 50 per cent of the GCC and we are about 50 per cent invested [there]," he said. “Banks will be a key focus for foreign investors as through banks you get exposure to the broader economy -- the Saudi market, like other markets in the region is not very well diversified.”
GCC markets, missed a global equities rally last year because of rising geo-political tensions, and subdued economic growth due to lower oil prices. Emerging markets stocks produced significant returns and the S&P 500 index in the US hit multiple records throughout 2017.
As oil prices stabilise and initial public offerings pick up pace, economists and analysts are predicting 2018 to be a better year for regional markets, especially Saudi Arabia with the anticipated MSCI up-grade and Saudi Aramco listing to be the major catalysts going forward.
Mr Fadlallah said over the five- to 10-year horizon, the potential for investment in the kingdom is strong but a lot of work needs to be done to improve the outlook, he said.
Within the UAE, he favoured tourism and identified health and education as the growth areas across the GCC markets.
“I am very interested in sectors where there is a natural [growth] advantage,” he added.