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KSA: a kingdom in transformation

Saudi Arabia
27.09.23 20:18

Oil is priced in U.S dollars and the Saudi Arabia country ETF on the New York stock exchange is KSA kingdom of Saudi Arabia.  iShares MSCI Saudi Arabia ETF (KSA).

This year, Saudi Arabia has reached a significant milestone as its gross domestic product crossed the coveted 1 trillion-U.S dollar mark for the first time.  Strengthening the non-oil private sector is a crucial agenda of Saudi Arabia’s Vision 2030, as the Kingdom’s economy is steadily reducing its dependence on oil.

Exposure to Saudi Arabia or GCC stock markets is still underinvested in many global investment portfolios due to lack of familiarity and the perceived regional or geopolitical risk and historic volatile nature of the Middle east.

Saudi Arabia today is the largest economy in the Middle East and the eighteenth largest in the world.

Very few countries and societies in the world have undergone the level of economic and social transformation the kingdom of Saudi Arabia is going through right now.  

Saudi Arabia under its vision 2030 has moved from a previously more closed state-controlled economy to a more a more and free market and private business focused environment/ economy. 
KSA currently ranks 17th globally in terms of GDP per capita. 

According to World Bank data, Saudi Arabia GDP per capita for 2022 was $30,436, a 25.97% increase from 2021. In comparison, India’s Gross Domestic Product (GDP) per capita was $2,085.12 in 2022, the People’s republic of China under President Xi Jing ping’s common prosperity The Gross Domestic Product per capita in China was last recorded at 11560.33 US dollars in 2022.

Observers and visitors to the Middle East often remember Saudi as a rather conservative if not closed country to foreign investors and business.

The Saudi Arabia vision 2030 changed this perception and old reality. Similar to the rise of China and the changes to ideology and way of doing business in China under Deng xiao ping, investors should study and see for themselves the new Saudi Arabia and its vision 2030 and its investment opportunities.

Saudi Arabia's dynamic economy is poised for growth, driven by its Vision 2030 diversification agenda. The Kingdom aims to transform its industries, stimulate innovation and solidify its global position. The country’s commitment to modernise its energy sector, targeting 650 GW of renewable energy by 2060, signals a promising future characterised by economic diversification and prosperity.

In terms of valuation, iShares MSCI Saudi Arabia ETF (KSA)  currently trading at around 38 us dollars a share and dividend yield of 2.3%  Saudi Arabia key index Tadawul currently trades at a valuation of 17x P/E.

 The main index and benchmark is the Saudi Arabia Tadawul All Share Index (TASI). It is disseminated by the Saudi Stock Market operator. The index was developed with a base value of 1000 in 1985 and it was restructured on 06/30/08. Volume in the index excludes 'small trades' (trades with value less than SAR 15000). 

Saudi vision 2030 was launched in 2016. It is a pro-Growth and Pro- competiveness Agenda focused on transformation. 

More than 700 economic reforms have been implemented since 2016 in nine main areas: services efficiency government, business environment, work, investment, finance, technical innovation Transparency and accountability, healthcare, education, and sustainable development.

By 2030 the Kingdom of Saudi Arabia aims to be one of the 10th most competitive economies driven by a focus on investment, entrepreneurship, innovation and productivity. 

According the Bloomberg data, Saudi equities over the last years have outperformed global equities by +0.94%.

Today Saudi is not only reinventing itself. Increasingly it is also key country and recently reached the status of 1 trillion-dollar economy.  Saudi is key BRIC member country shaping the new world order and this is not yet fully reflected in securities valuation nor asset prices. Saudi Arabia is expected to officially join BRICS on January 1st 2024. 

Bloomberg consensus view for KSA currently has 3.8% GDP growth for 2024 and 3.5% growth for 2025.

The old Arabic proverb of “Money brings more money.” Might apply to investors who have some allocation in global investment portfolios to KSA until at least 2030.

Author: Rainer Michael Preiss, Partner & Portfolio Strategist at Das Family Office in Singapore.