Investors Warm to Saudi Stocks; Middle East's Largest Market Gets Boost From High Oil Prices
INTERNATIONAL INVESTORS have tended to view Saudi Arabia's stock market a bit like the desert itself: It might be hot, but it also is dangerous.</br></br>But as an undercurrent of relative political calm runs through the nation and through the region, more foreign investors are taking a fresh look at investing in the Middle East's biggest stock market. It helps, of course, that Saudi Arabia's Tadawul All-Share Index posted a gain of 76% in 2003, rose 85% last year and is up 28% this year to a record 10853. That has boosted the total market value of Saudi stocks to about $360 billion, far ahead of Qatar, the next-largest market in the Gulf Council Countries, which has a market value of $72 billion.</br></br>The Saudi stock boom is being fueled by the high price of oil. The U.S. benchmark futures contract for oil is up about 32% this year and is hovering at around $57 a barrel. For the nation that holds the world's largest oil reserves, that has provided a huge amount of wealth that has been fed into the local market.</br></br>The stock market's surge has coincided with an increased appetite among international investors, especially hedge funds, for alternative, high-return investments. Institutional money that had been invested in Central and Eastern Europe when they were hot emerging markets has been redirected to the Middle East, and particularly to Saudi Arabia, analysts say. Individual foreign investors currently can invest in Saudi Arabia only through mutual funds, not directly.</br></br>Lorcan O'Shea, a director in Merrill Lynch's equity capital markets division in London, expects more gains to come. "We don't see anything that's going to derail this momentum for quite a while."