Dubai: Foreign flows are likely to fall short of local expectations in the near term, but this won’t diminish the fundamental attractiveness of investments into $500 billion (Dh1.8 trillion) Saudi equity market after it opens up, a senior official at JP Morgan Private Bank told Gulf News.
The Capital Markets Authority (CMA) is planning to allow in foreign investors from June 15, a move closely watched by the global fraternity, as the world’s biggest exporter of petroleum gives access to own shares of Saudi Basic Industries and National Commercial Bank.
The Saudi Tadawul index has been the best performer in the region, with gains of more than 18 per cent so far this year, compared to Dubai index, which gained 13 per cent.
“In our view, opening up Saudi equity markets to direct global investments constitutes a major step ahead toward enhancing the depth of one of the larger emerging economies in the world,” Tara Smyth, Head of Investments for the Middle East at J.P. Morgan Private Bank, told Gulf News.
Currently, about 88 per cent of the volumes on the domestic market is dominated by Saudi individuals and Saudi institutions.
Cautious on oil
“We remain cautious on our outlook for the oil price itself, with oil potentially falling a bit further before it bounces back up next year. We must not forget that volatility provides attractive entry-points for long-term investors,” Smyth said.
Oil prices have fallen 38 per cent over the past year to date as higher supplies weighed.
Lower oil prices may reduce the revenues for Saudi Arabia, the world’s biggest exporter of crude oil, but JP Morgan believes that lower oil prices would ultimately be a net positive for international markets, and particularly for the consumer sector, as well as oil importing regions such as Europe and Japan.
“For Middle Eastern investors, the oil price fall acutely affected their local markets, and as such they have been exploring interesting investment opportunities in other areas of the world. Investors recognise that the decline in oil was not negative for everyone, and real value can be made by identifying opportunities with those who will ultimately benefit from this dislocation,” Smyth said.
Euro denominated assets
JP Morgan has tactically increased its hedges to euro denominated assets, although they are underweight on fixed income. “We have increased our allocation to cash, as this allows us to have a meaningful reserve of ‘dry-powder’ to deploy in a market pullback. Currency volatility is back, correlations are down, and we are actively taking advantage of the landscape for our clients,” Smyth said.
For JP Morgan, the dominant theme for 2015 is the increasing divergence of monetary policies between the US and the UK on the one hand, and Europe and Japan on the other.
“These moves by the ECB [European Central Bank] and BoJ [Bank of Japan] have been welcomed by international investors, including ourselves. While we continue to remain overweight US equities, we have tactically added to Japan in our managed portfolios to take advantage of the QE cycle and will add to European equities tactically, should the opportunity arise,” she added.
