Penn Wealth Publishing

2019.12.08 Penn Wealth Report Vol 7 Issue 05

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12 penn wealth Report volume 7 issue 05 08 Dec 2019 Penn Wealth Report Copyright 2019. All Rights Reserved. investment intelligence ETFs: Middle East iShares Saudi Arabia ETF The Kingdom of Saudi Arabia is making a huge push to diversify its economy; this is a way to play that move. Despite our firmly-held belief that Crown Prince Mohammed bin Salman will turn the Kingdom of Saudi Arabia into the crown jewel of Middle Eastern investing, there is little doubt but that it will be a bumpy ride between here and there. Between the international press still seething over the killing of journalist Jamal Khashoggi, and the country's cross-Persian Gulf neighbors, the Iranian mullahs, chaos tends to reign supreme in the region. But fortunes tend to be made by making good bets in chaotic times, not when all seems calm. Applying that philosophy to the Kingdom, now appears to be a good time to look at the world's largest Saudi Arabian exchange traded fund, the iShares MSCI Saudi Arabia ETF (KSA $28-$30-$36). Timing, as they say, is everything. Take a look at the mountainous region that is a one-year chart of KSA. Not only was Q4 of 2018 an ugly period for US markets, it also happened to be when the Kingdom ended up with the blame for the Jamal Khashoggi incident, the Washington Post reporter killed at the Saudi Arabian embassy in Turkey. Despite the ruling family's denial of involvement, they were tried and convicted by an angry international press. High-profile business meetings in the country were canceled, and the Saudi stock market got pounded. All of a sudden, the crown prince went from golden boy to thug dictator in the narrative. After slowly climbing back, something of sig- nificance went rather unnoticed this past April: the most widely-used benchmark for gauging interna- tional markets, the MSCI (Morgan Stanley Capital International), added Saudi stocks to its Emerging Markets Index for the first time. It will also begin adding these companies to other indexes in waves. Somewhere around $14 trillion worth of investor assets track MSCI's indexes as their benchmark. is means that these Saudi companies will now begin showing up in funds which couldn't access them in the past. By the third of May, KSA topped out at $35.66 on the news. With virtually no time to bask in the glow, the Iranian regime began its attacks on Saudi oil assets, first with attacks on ships in the Gulf of Oman, fol- lowed by cruise missile attacks on Saudi oilfields. e 27% YTD climb in KSA shares evaporated. With full production back online by October, shares have been eaking out some gains once again. Breaking down the fund. An investor might assume, especially with the buzz surrounding Saudi Aramco's upcoming IPO, that KSA's fortunes rise and fall with the price of oil. at isn't necessarily the case. Only one-quarter of the fund's holdings, in fact, are in the basic materials sector. A full 44% of the fund's 70 holdings, on the other hand, reside in the financial services arena. Rounding out the top five sectors are: communi- cation services (8%), consumer defensives (5%), and consumer cyclicals (5%). Perhaps most impressive is the fund's beta, or level of risk compared to the over- all market: it is 0.41, or less than half the beta of the market. Despite the media's demoniza- tion of the Kingdom, the crown prince has been slowly but surely making needed reforms. Unlike Xi Jinping, we believe he has fully embraced free market capitalism, and we expect that to be reflected in the Saudi Stock Exchange. e contents of this report reflect the personal views, opinions, and research of Penn Wealth Publishing. While measures are taken to help assure the accuracy of data, no guar- antees can be made and the firm is not liable for any losses incurred by subscrib- ers. is is not a solicitation to buy. Always consult your investment professional before investing any money. KSA @ $30

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