Commodities, Emerging Markets, Energy, Frontier Markets, Stocks

Saudi Arabia: Middle East Investors Bullish On Equities As Oil Prices Appear To Be Stabilising

Middle East funds are increasingly positive toward Saudi Arabia’s stock market as oil prices appear to be stabilising and the kingdom is preparing to open its bourse to direct foreign investment, a Reuters survey of regional asset managers shows” according to Arab News.

Saudi Arabia Flag

So far this year, Saudi Arabia has outperformed all other major stock exchanges in the Middle East. The local Tadawul All-Share Index is up 11.2 percent year-to-date.

During the latest February survey conducted by Reuters, 53 percent of respondents said they expected to increase their Saudi equity allocations in the next three months, while none intended to cut them. In January, a month earlier, 40 percent planned to increase Saudi exposure while the rest expected to keep it unchanged.

Survey

Saudi Arabia, plans to open its $526 billion stock exchange to foreign investors this year in a move that is aimed at attracting more international investment as the nation looks to reduce its dependence on oil revenue. As a result of that, BlackRock is planning to launch an exchange traded fund (ETF) exclusively dedicated to Saudi Arabian stocks. [BlackRock Looks To Launch Saudi Arabia ETF Ahead Of Market Opening]

Generally analysts expect the market opening to be gradual. Institutional investors should be permitted to enter into stages. Sudden rush of funds into the Saudi stock market is unlikely.

Without any doubts, the opening would help Saudi Arabia secure the status of an emerging market. That could trigger very substantial fund inflows.

Some analysts believe that another positive factor could be oil as the commodity could have bottomed out at $45 per barrel in January. Assuming it is true, this could provide support to heavily weighted petrochemical stocks.

On the other hand there is a group of analysts who think the prices of oil could go as low as $20 a barrel. According to report from Citigroup that was released at the beginning of this month, on Monday, February 9th, a recent surge in the price of oil is simply a “head-fake,” and oil as cheap as $20 a barrel could be around the corner in 2015. [Plummeting Oil Prices: Factors Pushing Them Further Down]

In the meantime, “U.S. drillers are idling rigs at a record pace, gutting investment plans and laying off thousands of workers (…) Those steps highlight how the Saudi-led OPEC decision on Nov. 27 to maintain output levels and protect its market share is having the desired effect — pushing prices down so far that they threaten to curb output in the U.S. and other non-OPEC countries.” Bloomberg says.


 

ETFs: BNO, USO, XLE, XES, FRAK, RSX, ERUS

About ETFalpha

Consultant & Founder of ETFalpha ◦ Chief ETF Strategist & Co-Founder of EMerging Equity

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