Saudi stocks are performing well helping EM fund managers beat peers

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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 per cent. His EM fund has beaten 99 per cent 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 healthcare, tech, and insurance firms are surging in the Tadawul All Share Index this year. The benchmark itself has rallied 12 per cent, 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 $1.1bn in developing-nation equities, said by phone. Fiera Capital overall has $122bn under management.

The Fiera Oaks EM Select Fund, formed in 2021, has returned about 29 per cent this year — roughly three times that of the MSCI Emerging Markets Index.

Saudi Arabia’s Crown Prince Mohammed bin Salman’s plan to transform the 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 the 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 outlook

The growth is set to slow this year, with the International Monetary Fund’s outlook for Saudi Arabia predicting a considerable slowdown – by 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 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 $50bn 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 favours 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, the outdoor-advertising firm known as AlArabia, as well as utility AlKhorayef Water and Power Technologies.

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 GCC nations including Kuwait, Qatar, and the United Arab Emirates.

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