Khashoggi murder - harsh reality as inflows expected to rise

We all read about the brutal murder of Jamal Khashoggi, a Saudi Arabian journalist who was critical of the Saudi government and their ways in handling human rights. Khashoggi was allegedly murdered in a Saudi Arabian consulate in Istanbul on October 2nd.

This story happened during the time the country was holding the Future Investment Conference that was meant to position Saudi Arabia as an innovative, dynamic nation with a bright tech-centred future ahead of it. Instead of participating, many high-profile western CEOs and representing firms dropped out at the last minute after the Khashoggi killing.

Although this scenario is creating a negative aura against investing in Saudi Arabia, it is now with certainty that many investors who have diversified equity asset allocations that include emerging markets, will start to invest more, not less in Saudi Arabia.

Major stock market index creators FTSE Russell and MSCI, have both announced that they will be adding Saudi Arabia to emerging markets benchmarks that form the basis of trillions of dollars in investment funds and ETFs around the world. This comes about after the country has been consolidating the power under Crown Prince Mohammed bin Salam as he has embarked on a strategy to reform the country in the hope of creating new industries.

Which investments should we consider?

Blackrock’s iShares MSCI Saudi Arabia ETF (KSA) was launched in 2016 and is composed of 72 stocks which form part of the Saudi Arabian market. Although the country is heavily exposed to the oil industry, it is interesting to point that 41% of the fund is in financial stocks and 34% is in the material industry.

Another interesting opportunity in this space, is the WisdomTree Middle East Dividend Fund (GULF). The fund seeks to track investment results of dividend paying companies in the Middle East. The fund is regionally diversified and has its largest exposure in Saudi Arabia with 31%.

Interesting to note that as traditional Emerging Markets, especially powerhouses like China (-22%) and India (-19%), have suffered massively during the year, the Saudi Arabian stock market have performed quite well and is currently up by 12% for the year.

 

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