The WSJ relays reports that the Capital Markets Authority (CMA) of Saudi Arabia will offer index funds to foreign investors by the end of this month, but cautions that this might not necessarily lead to an opening up of foreign investment in individual companies. Would you buy these funds or, if and when it becomes possible, invest in individual companies in Saudi Arabia?
Initially my response to this question would be an enthusiastic “yes” given the massive growth that the Saudi economy has undertaken recently. Consider the positive indicators of the Saudi economy as a whole:
-Saudi Arabia is undertaking the world’s largest stimulus package by GDP
-Saudi has gained on the UN’s Ease of Doing Business Report every year
-Saudi has over $400 billion in net foreign assets as a safety cushion
In addition, the Banque Saudi Fransi wrote in a recent report that “economic growth is likely to accelerate to 3.9% in 2010, with the private sector growing 3.7% on steady turnaround in commercial activity.” And the growth in some markets like telecommunications and housing/real estate seem steady and even set to boom.
But despite the positive overall economic indicators for Saudi Arabia, many stocks underperformed last year. This is basically the opposite of what happened in the United States, since stocks in the U.S. have performed well of late but the overall economic recovery is sluggish. Still, it seems like a good idea to invest in the Saudi market as growth continues in the Kingdom.
UPDATE: Check this out. Robbin Rigglesworth (FT) writes that “Saudi Arabia’s stock market, the largest in the Middle East, has recovered more swiftly than most of its peers this year, justifying its position as the first choice in the region of almost every analyst and fund manager.”
UPDATE 2: It’s happening. Souhail Karam of Reuters reports:
“Saudi Arabia plans to launch its first exchange-traded fund of Saudi shares, which will be accessible to foreign investors, as part of efforts to open up the biggest Arab bourse.
Saudi investment bank Falcom Financial Services’ exchange-traded fund for Saudi stocks will be listed and start trading next Sunday, March 28, the stock exchange said in a statement on its website.”
