Saudi Arabia’s stocks offer some of the best buying opportunities in emerging markets, if investors look beyond oil, according to a top-performing fund manager.
(Bloomberg) — Saudi Arabia’s stocks offer some of the best buying opportunities in emerging markets, if investors look beyond oil, according to a top-performing fund manager.
The kingdom’s initiatives to reduce its economic reliance on crude will boost the market even as the global backdrop may be challenging, says Fiera Capital’s Dominic Bokor-Ingram, who has doubled his fund’s exposure to Saudi stocks to 20%. His EM fund has beaten 99% of peers this year, according to data compiled by Bloomberg.
While the Middle Eastern nation’s stock fortunes have long moved in sync with crude prices, shares of health-care, tech and insurance firms are surging in the Tadawul All Share Index this year. The benchmark itself has rallied 12%, outperforming emerging-market gauges.
“The cultural, economic and social reforms that are happening are almost unprecedented, certainly in my career, and this is leading to huge growth in the non-oil sectors of the Saudi economy,” Bokor-Ingram, who manages $1.1 billion in developing-nation equities, said by phone. Fiera Capital overall has $122 billion under management.
The Fiera Oaks EM Select Fund, formed in 2021, has returned about 29% this year — roughly three times that of the MSCI Emerging Markets Index.
Crown Prince Mohammed bin Salman’s plan to transform the oil-dependent Gulf kingdom is a key support to the Saudi stock market, with companies benefiting from government contracts for mega projects, investments by local companies and a push to take more firms public.
Saudi Arabia was the fastest-growing among the Group of 20 economies in 2022, helped in part by strong expansion of its non-oil sector in the final quarter.
“These are growth rates that you don’t find in any country pretty much anywhere in the world that’s investible. And that you haven’t really found in an emerging market since China in the 1990s,” said London-based Bokor-Ingram.
IMF Downgrade
The growth is set to slow this year, with the International Monetary Fund downgrading Saudi Arabia’s forecast by the most among major economies, citing oil production cuts announced earlier this year.
That shouldn’t deter investors betting on the longer-term structural shift in the Saudi economy, according to Bokor-Ingram, who held senior positions at Goldman Sachs Group Inc. and Morgan Stanley, before joining Fiera Capital in 2013.
The IMF forecast is “not useful when looking at the growth driver of the Saudi economy, which is more and more the non-oil sector,” he said. “It is this part of the economy that we are invested in and where we see very significant growth, regardless of recent moves in the oil price.”
Supporting the bull case for Gulf stocks is investors’ underexposure to the region. Equities in the Middle East and North Africa could see $50 billion of inflows over the medium term if emerging-market investors move to market weight from underweight, Goldman Sachs analysts wrote in early July.
Bokor-Ingram declined to name individual investments, but favors sectors like outdoor advertising that stand to benefit the most from transformation plans. While such businesses were previously challenged by restrictions on social life, they are now supported by an expansion in cinema complexes, amusement parks, entertainment and sports venues, he notes.
As of end-June, his fund’s top holdings included Arabian Contracting Services Co., the outdoor-advertising firm known as AlArabia, as well as utility AlKhorayef Water & Power Technologies Co.
Beyond Saudi Arabia, Fiera Capital’s biggest emerging-market bet is Vietnam, citing strong economic growth prospects and undervalued stocks. It also has investments in other Gulf nations including Kuwait, Qatar and the United Arab Emirates.
–With assistance from Farah Elbahrawy.
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