Saudi Arabia may allow foreigners to invest directly in stocks in the next year, said John Burbank, founder of the US$3.7 billion hedge fund Passport Capital LLC.
"The place that we probably have by far the biggest weight relative to other people would be Saudi Arabia, which is our favorite emerging market," Mr Burbank said. Passport has about 17 per cent of its capital invested in the Arab world's largest bourse. "We think the market's going to open up in the next year."
Direct foreign investment in Saudi stocks would attract $25bn to $30n in inflows, Mr Burbank said. The kingdom, which said it will open the market gradually, allows non-resident foreigners to invest in shares through equity swaps and exchange-traded funds. Foreigners account for about 2 per cent of investments in the bourse, Mr Burbank said.
Investors are seeking access to Saudi Arabia as the government pursues a spending plan of more than $500bn in an effort to boost the non-oil economy. MSCI, whose gauges are tracked by investors managing $7 trillion, last year resumed Saudi coverage and said it would consider including the nation in frontier or emerging market indexes if it allows direct access to foreigners.
"What we're interested in is the domestic economy," said Mr Burbank, whose $1.3bn Passport Global fund rose about 3.4 per cent in January, according to a performance update to investors obtained by Bloomberg. "The kingdom is taking in so much revenue and redirecting it now into the domestic economy."
Saudi Arabia's economy grew 6.8 per cent last year after raising its 2013 expenditure target by almost a fifth to a record 820bn Saudi riyals. That beat the 5.6 per cent median estimate of 16 analysts compiled by Bloomberg. The growth rate is "pretty extraordinary in these times," Mr Burbank said.
Saudi Arabia's stock exchange has a market capitalization of 1.44tn riyals, compared with $120bn for gauges in the United Arab Emirates and $308bn for Turkey, according to data compiled by Bloomberg. Saudi stocks have a dividend yield of 3.5 per cent, compared with 2.7 per cent for the MSCI Emerging Markets Index.
Petrochemicals stocks in the kingdom are attractive given high margins, Mr Burbank said, without specifying which companies Passport is invested in. Saudi Basic Industries Corp, the world's biggest petrochemicals company, is poised to report a 15 per cent increase in 2013 profit, according to the average estimate of 14 analysts compiled by Bloomberg.
* Bloomberg News