Views from the Ground: Saudi Arabia

Views from the Ground: Saudi Arabia

The Kingdom of Saudi Arabia is the world’s largest oil exporter and this, historically, has allowed the Kingdom to operate with little-to-no taxes while also offering subsidies to its citizens. Now, with an uncertain medium-term outlook for carbon and shrinking oil reserves, Saudi Arabia must pivot its model for growth. As a result, the Kingdom has chosen to invest current oil profits into long-term drivers of growth focused on consumption, tourism, clean energy, and private investment.

Though we find it prudent to remain neutral from a country perspective, we see a significant amount of overlooked individual companies in the market that we believe can compound earnings above their cost of capital for years to come.

The views and information discussed are subject to change and may not reflect the current views of the writer(s). The views expressed represent an assessment of market conditions at a specific point in time, are opinions and may not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell securities or investment vehicles

Definitions 

Current Account Balance is the sum of net exports of goods and services, net primary income, and net secondary income. EEMEA is the acronym for Eastern Europe, Middle East, and Africa. Foreign Exchange (FX) is the conversion of one currency into another at a specific rate known as the foreign exchange rate. Fiscal Balance is the difference between general government revenues and expenditures showing how much in a given year government spending is financed by the revenues collected. Gross Domestic Product (GDP) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. Initial Public Offering (IPO) is a company’s first sale of stock to the public. MSCI Emerging Markets (EM) Index captures large and mid cap representation across 24 Emerging Market countries. MSCI Emerging Markets EMEA Index captures large and mid cap representation across 11 Emerging Markets countries in Europe, the Middle East and Africa. Mystery of Capital is a renowned economist's classic book on capitalism in the developing world, showing how property rights are the key to overcoming poverty. Price/earnings (P/E) ratio is the ratio for valuing a company that measures its current share price relative to its per-share earnings. Return on Equity (ROE) is a measure of profitability that calculates how many dollars of profit a company generates with each dollar of shareholders’ equity. Saudization is officially known as the Saudi Nationalisation Scheme or Nitaqat, a policy implemented by the Ministry of Labor, whereby Saudi companies are required to hire Saudi Nationals on a quota basis.

Investment Considerations — There can be no guarantee that any strategy (risk management or otherwise) will be successful. All investing involves risk, including the potential of loss of principal.

Emerging Markets Risk — The risks of foreign investments are typically greater in less developed countries, which are sometimes referred to as emerging markets. For example, political, legal and economic structures in these country may be changing rapidly, which can cause instability and greater risk of loss. These countries are also more likely to experience higher levels of inflation, deflation or currency devaluation, which could hurt their economies and securities markets. For these and other reasons, investments in emerging markets are often considered speculative. Similarly, investors are also subject to foreign securities risks including, but not limited to, the fact that foreign investments may be subject to different and in some circumstances less stringent regulatory and disclosure standards than U.S. investments.