This Market Offers Twice the Liquidity of All Other Frontier Markets Combined 1

This market is moving rapidly

Acadian Asset Management is very positive about Saudi Arabia (KSA) (GULF) (GAF). Part of the fund managers’ conviction on the market is due to its possible inclusion in the MSCI Emerging Market index this year. Currently, Saudi Arabia is not included in any of the MSCI benchmarks; frontier (FRN) (FM) or emerging (EEM) (VWO) markets.

We interviewed Asha Mehta, SVP & portfolio manager at Acadian, who told us that, earlier foreign investors have not been able to hold securities in the Saudi Arabian market directly. “However, over time, we’ve seen the economy making certain changes, and they’re moving rapidly. There are a couple of motivations involved and we’re likely to see more investors investing in the market directly or maybe through P-notes and swaps,” Asha told Frontera.

A large, liquid & investable market

Saudi Arabia currently is a very large, liquid and investable market. “The liquidity is huge compared to other frontier markets (FRN) (FM); the liquidity offered by the Saudi Arabian market is more than twice the liquidity of all the other frontier markets, combined,” Asha told Frontera.“If Saudi [Arabia] were an emerging market today, it would be in the top 10,” she said, talking in terms of liquidity relative to other emerging markets.

Valuations in line with emerging markets

Valuations for Saudi Arabia seem to be expensive at the broad market level, trading in line with emerging markets broadly, so more expensive than frontier.

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But, “it’s very broad in terms of sector diversification, and a large number of actively traded stocks,” said Asha. The Saudi stock market currently boasts of 172 actively traded companies from a total of 180 companies listed on the exchange, adding up to an aggregate market capitalization of $399.79 billion (1.5 trillion SAR).

According to Asha, active investors, which are looking for a broader universe for stock selection, should be intrigued by the market inclusion theme (MSCI) with respect to Saudi Arabia. These investors are likely to start looking at this market.

Positive trends supporting the market currently

Positive trends supporting the Saudi Arabian market currently are:

  1. Liberalization occurring at a broad level
  2. The MSCI inclusion and the Saudi Aramco IPO
  3. General willingness for Saudi’s to engage in the global marketplace

All of this combined presents a positive opportunity for Saudi Arabia (KSA) (GULF) (GAF) for 2017. From a sector perspective, the petrochemical sector should provide good quality at an attractive valuation, said Asha.

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