“There are a lot of idiosyncrasies in the [Saudi] market,” says Mohammed Abdel-Halim,VP at EFG Hermes Asset Management. “It’s the largest market in the region in terms of capitalisation; it is the second most liquid emerging market globally, it provides 22 per cent of global oil reserves and 55 per cent of the GCC production.
“That market, I think, represents a significant opportunity, because if you look at the market today, it is closed to foreign access, there are very limited ways to participate.”
As Mr Abdel-Halim notes, overseas investors have long had difficulties accessing the Saudi markets. Recent liberalisation has allowed GCC nationals and foreign residents to trade, and the previously protected sectors of insurance and financial services have been opened to limited participation.
“There’s obviously a trend here of liberalisation that is taking place, and it’s definitely set to continue, because [the authorities] recognise that foreign institutional investors coming in provides a lot of depth to the market and provides stability to these markets as well, rather than having them completely retail dominated.”
The historic isolation of the market, coupled with the high retail order flow, offers opportunities for institutional investors with local knowledge, Mr Abdel-Halim believes. “I think if you look at the markets generally, they are inefficient, and I think the information gap is large in the case of Saudi Arabia because there’s very limited sell-side research, CEOs, CFOs only speak Arabic, financial statements are published in Arabic… so someone who has a disposition to home-grown talent, someone who can speak their language, can relate and get information.
“We’re looking at being able to exploit the inefficiencies in that market by looking outside of the traditional index plays. We’re trying to use our expertise in the region, our know how, to be able to exploit those opportunities that are under the radar screen.”
