Dubai: Amid an initial euphoria due to opening of Saudi markets, Credit Suisse expects fund flows to pick up gradually until it gets reclassified by the global index providers, even as the firm plans to increase its staff, a senior official at Credit Suisse Saudi Arabia told Gulf News.
Saudi opens its $550 billion (Dh2 trillion) equities market on Monday, equivalent to the size of Russia and Poland, to foreigners, but analysts say international investors are not in a mood to buy stocks due to its expensive valuations.
“There won’t be any major fund flow at the beginning of the opening up. We would gradually see a pick- up in direct investments from the QFIs. Most of the clients will continue to access the Saudi markets through P-notes and swaps until they clearly understand the mechanism of how the market works,” Abdul Aziz Bin Hassan, Managing Director and Chief Executive Officer of Credit Suisse Saudi Arabia told Gulf News over the phone.
“International investors always look at valuations regardless of the index. Despite issues on the geopolitical front, markets are doing well. These issues are unlikely to deter foreign investors from investing in Saudi,” Hassan added.
The Saudi market is currently driven by retail investors, but the CMA would like more participation from institutional players, which is expected to give more depth in the market, help drawing institutional players in the market.
Expensive valuations would keep the investors on the sidelines, as the index has gained 40 per cent in the past couple of years.
“Saudi market is not cheap at the moment compared to other markets in the GCC. But there are certain opportunities in some sectors like health care, banking, and retail,” Hassan said.
Credit Suisse is also planning to increase its staff strength to tap into the opportunity.
“We are very well-positioned to respond to client needs and market trends post the opening up. It’s an important growth market for us. We are building our equities team in terms of sales and research,” he added.
“Opening up of markets will help the international investment to come into Saudi Arabia with a lot of depth, research, creating more opportunities in terms of governance standards,” he said.
Saudi, which is the world’s largest oil exporter, is the most diverse market in the Gulf, providing exposure to sectors such as health care, retail and petrochemicals.
To gauge the investors sentiment, Credit Suisse had a couple of roadshows last year, which witnessed remarkable interest in the investment community.
The markets regulator has also been trying to increase the depth of the market by encouraging family owned businesses.
“The CMA (Capital Market Authority) has been encouraging family businesses and companies to restructure and do IPOs for a couple of years now. However, since last year, they have been trying harder on that front. This will help the families for continuity of their businesses and it is good for the CMA to create more depth in the market,” he added.
The CMA has been strategising to develop and restructure the debt market, by working with the relevant government entities to facilitate the listing of bonds, sukuks and make the process much easier.
Traditionally companies in Saudi had been dependent on banks for financing needs, and they seek alternatives beyond the banking system, but the potential has not been fully tapped.
The CMA is making rules for credit rating agencies and they may come out in third or the fourth quarter. There are challenges in developing the debt market.
“There is no secondary market to have a corporate yield curve on this. We could see some issuance from the government to finance deficit. I expect it to happen at the second half of the year.
There are no liquidity issues for corporates here and they are getting serviced by the banks,” he added.
The CMA is making rules for credit rating agencies, that is expected in the third or the fourth quarter.