Capturing opportunities in a transforming Saudi Arabia

Saudi Arabia sky scraper

Why consider Saudi Arabia?

Economy is undergoing major transformation

The “Saudi Vision 2030” programme of social and economic reforms is intended to diversify the Saudi economy away from such a heavy reliance on oil and government funding. Domestically, this includes increasing use of solar and other renewable energy sources, and increasing the number of Saudis in private employment.

Internationally, they are trying to leverage the country’s unique geographical position between three continents, and encouraging major domestic corporations to expand across borders and into global markets. They also want to attract foreign investors and visitors.

 

Saudi Vision 2030 goals* 2016 2030
Reducing unemployment 11.6% 7%
Increasing non-oil exports (% of GDP) 36% 50%
Increasing contribution of foreign direct investment (% of GDP) 3.8% 5.7%
Increasing private sector contribution (% of GDP) 40% 65%
Increasing annual visitors to Umrah 8 million 30 million

*Source: vision2030.gov.sa

 

Initial Public Offering (IPO) pipeline, including Aramco

The kingdom is planning to sell 5% of the state-owned oil giant, Saudi Aramco, partly to help fund the reform programmes. This could raise upwards of $100 billion, and is likely to be the largest IPO in history. This along with several other significant IPOs in the pipeline will expand the diversification of the main Saudi Arabian stock market index (MSCI Saudi Arabia), potentially open investment opportunities and increase the importance of the Saudi equity market for international investors.  

Inclusion to MSCI Emerging Markets index may drive inflows

Since 2015, the government has introduced reforms to make it easier for foreign investors to gain meaningful access to the Saudi equity market. These have included easing requirements for foreign investors and addressing some administrative processes so they are more in line with global standards.

As a result, the index provider MSCI has just reclassified Saudi Arabia to Emerging Market status (from Standalone Market) in its recent annual review, and has scheduled Saudi Arabia to go into the MSCI Emerging Market index in two phases during 2019.

MSCI suggests the weighting of Saudi Arabia will be around 2.3% of the MSCI Emerging Markets index, although it should become an even bigger part of the index after the completion of the Saudi Aramco IPO as well as others.

 

Find out about the first Saudi Arabia ETF to be launched in Europe

 

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.

As this is an emerging markets ETF, investors should be prepared to accept a higher degree of risk than for an ETF investing in the securities of issuers in other more established economies or developed countries, as difficulties in dealing, settlement and custody could arise.

The Fund is exposed to the risk of bankruptcy, or any other type of default of the counterparty related to any trading transaction entered into by the Fund.

In order to reach its investment objective, the Fund enters into swap agreements which provide the performance of the Reference Index, and may imply a range of risks which could lead to an adjustment or even the early termination of the swap agreement.

On-exchange liquidity may be limited due insufficient demand, Reference Index suspension, a decision by one of the relevant stock exchanges, or a breach by the market maker of respective stock exchange requirements and guidelines. This may result in share prices that differ significantly from the NAV.

 

Important information

Your capital is at risk. You may not get back the amount you invested.

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