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5 things to know about the Saudi Arabia stock market
MARKETWATCH 3:19 PM ET 7/22/2014
Symbol Last Price Change
MCD 96.17down -1.38 (-1.41%)
BKW 26.5801up +0.4501 (+1.72%)
QUOTES AS OF 03:26:20 PM ET 07/22/2014
Looking for a new place to get attractive returns, low risk and high liquidity?

After years of discussion, Saudi Arabia's stock market regulator has finally announced plans to open its $530 billion stock market to foreign investors.

Is this a market worth going after? Several analysts say yes. The Tadawul all-share stock index is up 17% this year. With the Saudi economy growing by around 5% a year, the solid performance should continue, they say.

"The market gives investors exposure to emerging market-type growth coupled with low-risk sovereign credit quality," said Bassel Khatoun, head of Middle East and North Africa equities at Franklin Templeton Investments.

Of course, frontier markets generally come with more risks than developed markets. So before you throw your money east, here are five things to keep in mind.

-- Sara Sjolin

-Sara Sjolin; 415-439-6400; [e-mail]

When will the market open for foreigners?

The Capital Market Authority hasn't actually given a date. It is now expected to finalize the details and later announce the timing of the move.

Akber Khan, head of asset management of Al Rayan Investment in Doha, Qatar, said the market authority now seems to have committed to the move in the first half of 2015.

-Sara Sjolin; 415-439-6400; [e-mail]

Why you might want to invest in it?

It's liquid, it's large and much better diversified than its regional peers.

Moreover, the government is pouring in massive amounts of money into social, civil and transportation infrastructure projects, a key driver for growth. That gives it an extremely robust medium-term investment case, analysts say. As Khan from Al Rayan Investment puts it: "It ticks all the boxes."

In terms of size, the Saudi stock exchange has 160 listed companies, far more than other bourses in the region. Some $ 2.5 billion worth of shares are traded a day, which gives the exchange much better depth and breadth than, for example, the Qatar and Dubai exchanges, according to Khan.

Another plus: The Saudi Arabia riyal is pegged to the dollar, reducing the risk of currency fluctuations.

-Sara Sjolin; 415-439-6400; [e-mail]

What are the biggest sectors?

Perhaps not surprisingly, the petrochemical segment is a key part of the market. The sector's best-performing stock so far this year is Rabigh Refining & Petrochemical Co. , up 42%.

Other major sectors in Saudi Arabia include the banking industry, consumer goods, industrials and telecoms. The country is actually one of the heaviest users of mobile data and ranks first when it comes to most Youtube views per capita.

Among consumer-exposed stocks, Herfy Food Services Co. is a company that has performed well for many years, said Thomas Vester, chief investment officer at LGM Investments, part of BMO Global Asset Management. The burger chain, which competes with McDonald's(MCD) and Burger King(BKW) , is among LGM's 10 biggest investments in its frontier-market funds.

-Sara Sjolin; 415-439-6400; [e-mail]

What's the biggest company in the market?

Diversified petrochemical producer Saudi Basic Industries Corp, or just Sabic , takes home the prize as the largest listed company in Saudi Arabia, with a stock-market value of about $100 billion. The government still owns 70% of the shares and investing in Sabic is like "investing in the heart of the Saudi economy," according to Al Rayan's Khan.

Last year, the company earned 25.3 billion riyals, or $6.7 billion, in net profit and had total assets of $90.4 billion at the end of 2013. That's almost the same as Coco-Cola Co. (KO).

The stock is up 13% so far this year, but that's not even close to the market's top performer: Al Alamiya for Cooperative Insurance Co. . That one has soared 163%.

-Sara Sjolin; 415-439-6400; [e-mail]

What are the risks?

The Saudi Arabian stock market comes with a warning -- just not the one you might expect.

Analysts say geopolitical worries aren't a concern for local investors. If anything, they can be a positive because they drive up oil prices, giving the government more money to spend on its citizens.

A bigger concern for investors could be a relative lack of transparency and disclosure by companies, according to Khan. Longer term, the government will likely start to pull back on its subsidies, which could eat into domestic companies' extremely high profit margins, he said.

-Sara Sjolin; 415-439-6400; [e-mail]

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07-22-141519ET
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