Better stock price performance
Active investors growing
On-the-ground research
Emerging market investors are increasingly targeting Saudi Arabia’s smaller listed companies and initial public offerings, because of their better stock price performance versus their bigger peers.
Since early 2020, foreign investors have been net buyers of almost $34 billion of Saudi Arabian equities, a report by the Dubai-based consultancy Iridium Advisors has revealed.
Much of the inflow so far this decade has been from passive, index-tracking funds.
But a growing chunk is by active investors who pick individual company stocks and are interested in IPOs, said Aqib Elahi Mehboob, head of sell-side research at BSF Capital in Riyadh.
International investors were net buyers of $352 million of Saudi Arabian stocks last month, Iridium estimated.
“These investors are opportunistic,” Mehboob said. “They’re actively engaging with the market, travelling to Saudi Arabia to do on-the-ground research to identify value.”
All listed Saudi Arabian companies theoretically permit up to 49 percent of their shares to be owned by foreigners.
In practice, however, government or state-related entities tend to own a large majority of the shares in many, especially in blue-chip companies such as Saudi Aramco and Saudi National Bank. Real estate investment trusts (reits) allow 100 percent international ownership.
Among Saudi Arabia’s 20 largest listed companies, international ownership is an average of 10 percent.
Over the past 15 months, international investors have been net sellers in six of the 20 heavyweight Saudi stocks.
The majority state-owned petrochemical producer Saudi Basic Industries Corp recorded the biggest fall in international share ownership, down about one sixth.
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“Over the last two to three years, value hasn’t been in the large caps, which have underperformed,” Mehboob said. “The value has been in mid-cap companies and IPOs.”
There were 38 IPOs in Saudi Arabia last year which, combined, raised $3.3 billion. Of these listings, 27 were on the parallel Nomu market for small companies.
The IPO activity brought in many active managers “with various strategies in terms of how they play the IPO market,” according to Mehboob.
International investors still have a bias towards sectors that are the focus of state-led economic reforms and investment such as energy, power, education, healthcare and insurance, Mehboob said.
“Some of the nimbler international investors have also looked at small to mid-cap companies which reported losses year after year following Saudi Arabia’s 2016 fiscal contraction.”
However, a subsequent increase in both public and private investment has improved their operating metrics and returned them to profitability, Mehboob said.
“Active” international investors tend to come from the United States and United Kingdom, and act over a time frame of 12 months or less, he said.
Among the bigger companies, the telecom operator Etihad Etisalat (Mobily) has the largest share of international investors at just under 24 percent, followed by Saudi Awwal Bank (SAB, 17 percent) and Saudi National Bank (SNB, 16 percent).
In terms of the biggest relative increase in foreign ownership since December 2023, Almarai’s has more than doubled to 10 percent. Mining company Ma’aden’s foreign ownership rose by just over half as much again, and Acwa Power’s was up just under half as much again.
Innternational investors held 0.6 percent of Saudi Aramco’s total shares as of March 12, up by half from 0.4 percent in December 2023, an AGBI analysis shows.
With only 2.5 percent of the company’s shares available to minority investors, that rise represents a material increase.
