How is Maceen Capital getting more involved in solving the housing deficit from a financial perspective?
Accessing the Saudi market is not easy. You have to be on the ground to understand the dynamics of the real estate market. It has to really be translated well in terms of rewards and risks associated. We have witnessed a drop in real estate market by 14% over the past eight months. We believe this was mainly driven to the announcement of a 30% down-payment in order to receive a mortgage loan. In addition, the main challenge is the availability of land and the quality of developers. It is a supply side issue. The latest legislative decisions on raising white land fees will provide a major boost for land to be readily available for assistance, therefore putting pressure on prices and shrinking the bubble.
What is your outlook on the opening up of Tadawul to QFIs?
The most important effect is confidence. There will definitely not be a huge inflow of cash in the short term as investors will be cautious until the vision of registration process and inclusion in MSCI is clear. However, the entry into the market will boost the confidence of local investors and encourage them to invest more. It is substantial. The main objective will be volatility reduction through increasing institutionalized effect on the market movements and improvement of corporate governance through leveraging on worldwide investment perspective. It will improve, but not substantially. What will really help is having effective regulations in place. Of course, improvements are always required. Maybe the advent of foreign investors will help speed up the process, as will the international angle in all decision-making processes. It is a fantastic opportunity for international investors to diversify their books as well. It is a shortcut for FDI. This is about going through the backdoor to the capital market.
For Maceen Capital, how do you plan on taking advantage of this opening?
This definitely will help boost the company's portfolio. Maceen circle of competence is portfolio management. We believe QFI will target investment houses that have the knowhow and understanding of TASI to run their investment book from abroad. This is how Maceen can leverage such opportunity.
This opening has been long-awaited by foreign investors. How would you characterize the level of interest you have seen from foreign investors in the Saudi stock market?
We are considered the largest stock market in GCC and QFIs will have the opportunity to directly invest in exceptional companies that have solid fundamentals, especially tapping into the banking and petrochemical sectors in Saudi Arabia. There is a lot of enthusiasm about this. The appetite of foreign investors toward TASI has been witnessed by the swap transactions that took place before the announcement, around SAR7.5 billion. We will see excellent transactions in the banking sector, in particular from foreign investors as well as in petrochemicals once oil prices rally.
There has been much debate about the correlation between price of oil in Saudi Arabia and the performance of the stock market. What are your views now on how these lower prices are affecting the outlook of the stock market?
We believe the relationship between the stock market and oil prices was never linear. However, there is only psychological correlation between oil prices and the stock market. We have sectors that are defensive, but it is mainly investor sentiments that drives movements in the market from oil price fluctuations. We have witnessed a recovery in the oil prices and the market started correcting since beginning of this year. Oil prices have recovered substantially, and I believe they will continue to recover as shale gas producers are drowning with huge debt and they are pressured to reduce their production. I do not believe the oil price freefall will put any pressure on government expenditure given our strong foreign reserves and capacity to issue sovereign debt as current debt level represents only 1.6% of GPD, while in the US, for example, it is 100%. This should give comfort to investors over the short term.