Throngs of consultants wearing Western attire have become a common sight in the lobbies of Riyadh’s plushest hotels as Crown Prince Mohammed Bin Salman embarks on a multi-trillion dollar plan to wean Saudi Arabia off oil. In recent months they’ve been joined by another cohort of besuited individuals: fund managers, keen to get an early foothold in the next big emerging-market growth story.
The kingdom, which only joined the MSCI Emerging Markets index in 2019, has historically attracted very little from the billions of dollars that stock investors allocate to global stock markets. Fund managers were put off by the lack of liquidity in the Tadawul All Share Index, which limits full foreigner ownership, and by the nation’s over-reliance on fossil fuels.
Now, with Russia sanctioned out of the benchmark index and China losing its allure due to an economic slowdown, some investors are starting to view Saudi Arabia in a new light, attracted by a steady stream of reforms designed to encourage more foreign investment and the vast sums being thrown at MBS’s Vision 2030 transition plan. The increased interest has helped the Tadawul rally more than 11% this year, more than double the return of the MSCI benchmark.
“Saudi Arabia now feels like China in the noughties,” said Fergus Argyle, who helped launch a new emerging-markets fund for EFG New Capital two years ago that has an 8% allocation to the Saudi stock index.
Argyle says Saudi Arabia is still “very underrepresented” in investor portfolios even after the Tadawul index attracted net foreign inflows of over $3 billion this year. That’s a fraction of the $24 billion that poured in when the index joined the MSCI benchmark four years ago, but analysts say the volume will grow as reforms get under way.
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