I believe that the Saudi Arabia presents a very interesting investment opportunity to investors looking for hard catalysts. The Capital Market Authority of Saudi Arabia recently announced that they would open the Saudi stock market (Tadawul) to foreign investors starting on June 15, 2015. The market currently has 163 traded constituents with the index up +18.4% YTD and +4.5% in last 52-weeks. The Market sold off in late 2014 mainly due to the decline in oil prices; however, it is important to note that in addition to the Petrochemical industry, the Banking, Insurance and Retail Development industries make up a sizable portion of the market.
Two Ways to Win
- Sizable foreign inflows due to Index / ETF inclusions and portfolio diversification
- Rebound in Oil Prices
Based on foreign ownership of ~10-15% in Gulf Markets such as Dubai, analysts predict that there will be $40-$50bn of new inflows into the Saudi market once it's open to foreign investors. Given the current market cap of $564bn, this implies 7-9% of net inflows. There are already numerous companies like BlackRock, Global X and Market Vectors who have filed paperwork to launch Saudi Arabian focused ETFs once the markets are open. Furthermore, top fund managers estimate that Saudi Arabia could eventually make up 3-5% of the MSCI Emerging Markets Index, leading to incremental technical buying. I think any rebound or bottoming in oil prices can provide additional upside on top of this.
While there aren't a lot of ways to invest in Saudi Arabia currently, I found a db x-trackers MSCI GCC Select Index UCITS ETF (XGLF GY) trading in Germany that has some exposure to Saudi Arabian companies. I believe an ETF such as this could provide an investor with Saudi exposure in advance of the market opening to foreign investors in mid June.
Disclosure: The author is long XGLF.