Promise of Saudi Reforms Attracts Qatari Money

  • Amwal of Qatar may double Saudi weighting in its equity funds
  • Investors anticipate inclusion in emerging-market indexes

Saudi Arabia has attracted the attention of global investors and investment banks looking to benefit from the kingdom’s plans for economic transformation. It’s also drawing regional money.

Amwal LLC, a Doha-based asset manager, is buying Saudi stocks in anticipation of the market’s inclusion in emerging-market benchmarks. The Qatari firm plans to boost the Saudi Arabian exposure in its four equity funds to as much as 60 percent by the end of the year, said Rami Jamal, a portfolio manager at Amwal, which oversees around 1 billion riyals ($275 million) in assets. That’s up from close to 30 percent in the beginning of 2017.

“Take off for Saudi is this year,” Jamal said in an interview in Doha on April 13. “Saudi is still trading at slightly higher multiples than the region, but the growth potential is there and it is worth it. You are buying into the future.”

Regulators are pursuing a series of reforms to help the country win inclusion in emerging-market indexes such as those compiled by MSCI Inc. and FTSE Russell, a status that could unleash passive inflows from global funds. Next week, the Saudi bourse will shift to a T+2 settlement cycle from the current same-day settlement, a move Jamal said is “the last tick in the box” before classification as an emerging market next year.

Amwal’s Al Hayer Fund, focused on stocks in the six Gulf Cooperation Council countries, gained 6.7 percent in the 12 months ended March, compared with a 0.2 percent increase for Qatar’s main benchmark and outperforming most regional indexes. By potentially doubling the weighting of Saudi stocks, the money manager is looking to accelerate those returns further, Jamal said.

Participation by foreigners in the kingdom’s equities market remains limited, even after the stock exchange started allowing some foreign direct investment in 2015. Last year, it eased restrictions on who qualifies as a foreign investor.

To read more on plans to reform Saudi Arabia’s economy, click here

Here are some of Jamal’s views on the outlook for Saudi Arabian equities this year:

  • Sees FTSE inclusion happening faster than MSCI
  • National Transformation Plan and changes expected for the healthcare sector are a “wonderful marriage”
  • Consumer stocks not seen as attractive, due to decline in oil prices and cut in allowances to public workers. Still, supermarkets and staple companies are performing well, healthcare too
  • Banking stocks are interesting as a consequence of rising interest rates. Jamal remains cautious on the outlook for bad-debt provisions 
  • Petrochemicals are expected to sustain gains as oil prices stabilize, feedstock prices remain low and global competitors carry out maintenance and shutdowns 
    • Sector seen as “a perfect hedge to everything that happens in Saudi Arabia,” because all the products are exported
  • On Saudi Arabian Oil Co.’s eventual initial public offering, given the company’s size and outsize proportion within the local market, Jamal expects many money managers to look for customized indexes in which Saudi Arabian holdings are capped or where Aramco’s weighting will be adjusted

In its domestic market, Amwal plans to start an exchange-traded fund focused on Qatari stocks this year. The ETF could be Qatar’s first, giving investors access to the world’s richest country on a per-capita basis as it diversifies the economy and continues a $200 billion infrastructure upgrade before the 2022 World Cup.

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