2. What investors need to know…good things
Attractive market
Despite that, buying into the stock market - which is up 15% already this year - is a mouth-watering prospect for qualifying investors.
The market's value of over $560bn and daily trading volumes of about $2.4bn outstrips bourses in South Africa, Russia, Turkey and
Mexico.
One key sector, retail, is booming due to high consumer spending.
Subsidised gas has created an extremely competitive petrochemicals sector and the banking sector also looks highly profitable with
many bank customers choosing Sharia-compliant, interest-free deposits, which is a bonus for investors.
Investors will also appreciate Saudi Arabia's strong economy. Over the past few years, high oil profits have been used to wipe out the
country's debt and build its foreign reserves to 100% of GDP.
There's a growing middle class, salaries keep rising and spending on healthcare and education remains a priority for King Salman.
Economists predict the non-oil sector will continue its impressive growth rate, at around 5% this year.
3. What investors need to know…bad things
• One Middle East-based equities and portfolio manager told me he thought there would be fewer than a dozen institutions certified to invest to begin with, while another boss of a
Saudi-based asset management company thinks only half the $50bn of investments on offer to foreigners will be taken up over the next two years.
• One reason could be that, as a consequence of high earnings, company valuations are on the high side for investors although they could be justified by potentially offering higher
growth rates.
• Another possible deterrent is the mandatory requirement that money must be settled up front rather than within two days of the investment, as is the case in other stock
markets.
• The stock market can also fall sharply as a result of the volatile price of oil in the very short term, though it tends to recover quickly too. Over the last 12 months, oil prices have
dropped around 40% and the stock market is down only 2%.
• One very experienced international asset manager believes that big pension funds and insurance companies are likely to wait and see how the reforms bed in first.
• To be clear, very few doubt this opening is a good move, just that it will take time.
• Looking ahead, interest may shoot up in a few years if Saudi moves on from its frontier market status to join the most widely followed emerging markets index, the MSCI.
• He says it could eventually lead to an energised debt market and also predicts that pressure will increase for domestic political and social reforms from ethical investors of the
future.
