Saudi Arabia’s Tadawal stock exchange has opened its doors to foreign investors for the second time this year, according to Peter Cooper, editor-in-chief, ArabianMoney.net. “Saudi Arabia’s bourse has launched its second Exchange Traded Fund (ETF) in three months. Both ETAs are open to foreign investment although individual stock purchases remain a closed door,” he said. Previously non-resident foreigners were limited to trading via share swap transactions.
In the August edition of ArabianMoney’s subscription-only newsletter, Cooper said the new ETF is again launched by Falcom. “The second Falcom ETF intends to focus on the petrochemical sector with Saudi Basic Industries Company leading the 14-stock portfolio.”
Earlier this year, Falcom launched the first Falcom Saudi Equity ETF (Falcom30: AB), with questionable performance to date. The fund value has dipped, tracking the fall in the Tadawul over the same period. The Index sits at around 6,200 having peaked at 21,000 in 2006, trading around 12 times earnings and twice book value.
“Not surprisingly the Saudi stock market’s fortunes dance in rhythm with the price of crude oil, although there is also a play on a demographically exciting economy which has proven resilient in the global economic crisis, if only because it remains relatively closed,” Cooper noted.
In the medium-term, he sees scope for growth driven by the conservatively run banking sector and consumer demand from the youth-heavy population mix.
Turning back to oil prices, the newsletter predicts that before any noticeable growth oil prices will head south as the global economy plunges into the long-mooted double dip recession, later this year.
Cooper said that stock markets will track this fall. “Any fall in the price of a barrel of oil is likely to be of short duration, however depending on how low it goes there could be an understandable air of panic.
“In the Kingdom, the heavy dependence on oil for national income would bring a predictable response in stock market and it is likely that investors would head for the exit en masse,” he suggested. He also said a sturdy investor with a stomach for the dip could profit from the new ETFs.
“The global demand for oil is likely to influence an early price recovery and is one reason to consider that the GCC will be out of the double dip recession more quickly than many others,” Cooper concluded. A third ETF could join the duo at that time, with Shua'a Capital promising a Saudi Fund launch in the autumn.