The Saudi Arabia stocks have caught investor attention over the past few years. The iShares MSCI Saudi Arabia ETF (KSA) has witnessed a year-to-date increase of over 8% and an almost 20% increase over a three-year period. In contrast, the iShares MSCI Emerging Markets ETF (EEM) has only witnessed a 4% increase in 2023 and 7% in the last three years. The Tadawul All Share Index, which is Saudi Arabia’s benchmark index, has also outpaced the EEM, having witnessed a 5% increase year-to-date.
Why Investors Should Consider Saudi Arabia Stocks
Saudi Arabia’s exposure to robust energy prices amid OPEC+ cuts and tightening supply from the Russia-Ukraine conflict have bolstered the country’s profile as a defensive emerging-market play. Additionally, Saudi Arabia is the largest equity market in the Middle East and North African region. Morgan Stanley estimates that by 2030, the Saudi equities market could reach $1.5 trillion, putting it on par with present-day South Korea or Australia.
Risks Associated with Investing in Saudi Arabia Stocks
Saudi Arabia remains the most underweight country among emerging markets. As of January, 46% of global market funds own zero Saudi stocks, putting it on par with the much-smaller markets in Chile and Poland. Human rights issues, corporate governance concerns, and high valuations are the major risks associated with investing in Saudi Arabia Stocks.
Diversification, Foreign Investment, and ESG Concerns
The Saudi market is heavily dominated by financial sector stocks. However, the “Saudi Vision 2030” framework introduced in 2016 aims to diversify the economy and reduce dependence on oil. As more public-private projects are created to increase industrialization, this could further benefit the country’s big banks that fund these projects. The kingdom’s Vision 2030 economic blueprint aims to raise foreign direct investment contributions to 5.7% by 2030. To offset the governance risks and concerns, investors suggest investing in a “diversified manner,” such as across sectors and through a country index. Corporate governance concerns also weigh heavily on investors’ considerations. Most of the country’s major companies are state-owned to varying degrees. The Saudi government holds nearly 95% of shares in Aramco, the world’s largest oil and gas company.
Investing in Saudi Arabia stocks can be highly rewarding, but investors must be aware of the risks associated with it. The country’s exposure to robust energy prices amid OPEC+ cuts and tightening supply from the Russia-Ukraine conflict have bolstered the country’s profile as a defensive emerging-market play. Saudi Arabia’s “Saudi Vision 2030” framework aims to diversify the economy and reduce dependence on oil, which could further benefit the country’s big banks that fund these projects. However, human rights issues, corporate governance concerns, and high valuations are the major risks associated with investing in Saudi Arabia Stocks.
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