When Saudi Arabia opened its $570bn (£375.5bn, €513bn) Tadawul stock exchange to direct foreign investments for the first time in June this year, it was widely seen as a crucial stepping stone to the kingdom’s entry into the MSCI Emerging Markets index.
The biggest economy in the Gulf Cooperation Council and the 19th largest economy in the world, Saudi Arabia had a nominal GDP of $753bn in 2014. It is also the most populous nation in the GCC with 30.8 million people. More than half of these are under the age of 30.
Tadawul is the largest stock market in MENA and the seventh-largest in the global emerging market (GEM) universe, with an average of around $2.5bn traded daily, according to Emirates NBD Asset Management.
Dubai-based Yong Wei Lee, who runs the Emirates MENA Top Companies Fund, a sub-fund of the Luxembourg-domiciled Emirates NBD SICAV, is well placed to follow the progress of this important market.
"Saudi Arabia is larger than other prominent emerging markets such as South Africa, Russia, and Malaysia."
This is due to around 40% of the portfolio being invested in Saudi Arabia, having eased off a little from 46% exposure in May, after what Lee describes as “a pretty decent run”.
“If the market upgrades to the MSCI Emerging Markets, which could be in 2017 or 2018, we could see a weighting of 2%, maybe 3% in the emerging market index. That’s not too bad a number to have.”
To put this in context in terms of market cap, Saudi Arabia is larger than other prominent emerging markets such as South Africa, Russia, and Malaysia.
“This is a real game-changing event for Saudi Arabia. At the initial stage, somewhere in the region of $10-15bn could flow into the market. Further down the road, we could see quite a lot more money coming into the markets, not just from the passive funds but from the active funds, too.”
For the present, he reports that foreign investors are not coming in droves just yet but are instead focusing on taking profits.
Although steeped in an understanding of the ways of the Middle East, Lee grew up in Singapore and for a short time followed a career in mechanical engineering.
After switching roles, becoming an analyst and portfolio manager at an asset management company that evolved into Lion Capital Management following a merger, he moved to the Middle East. It was here that he was asked by Emirates NBD Asset Management to launch the Emirates MENA Top Companies Fund.