Emerging Markets Up Close: Opportunities in Saudi Arabia

Emerging Markets Up Close: Opportunities in Saudi Arabia

Elle Wu:          One important factor to keep in mind, when talking about emerging markets, is that that asset class comprises of over 25 countries.  There are a lot of places to invest in when looking for strong businesses.  One of the things we want to highlight in our observations in EM series, is different countries that you and your co‑PM, Charlie, have gone to visit.  And we’re gonna kick off this series with Saudi Arabia.  Josh, you recently completed a trip there.  Can you tell us what you’ve learned, what you’ve seen, what you like about Saudi Arabia.

Josh Rubin:     Absolutely.  Saudi Arabia is a very impressive case study in a combination of economic reform and social reform.  It, it was actually my final international trip before COVID and part of my very first international trip after COVID. So, not only have I been watching it from a distance for a number of years, but I, I got to see the book ends of the world closing and then reopening again in relation to COVID.  I think if, if we step back just from Saudi Arabia, and we talk about a few of the key countries in the middle east, what we see are some very interesting and attractive secular trends or a secular foundation.  The population is somewhat in between Spain and Italy, so a fairly sizable population.  The GDP is also at a level of western European, uh, size.  And purchasing power per capita is kind of similar to Portugal.  So, in general, across the middle east, you get an economic foundation that looks more like a western European foundation, and add to that, the currencies are actually pegged to the US dollar.  So, as a, as a US investor, you don’t have currency depreciation risk like you might have in certain other countries.  On top of that, the key countries across the middle east, and Saudi Arabia, in particular are embarking on a process of really trying to diversify their economies, and so what they’re attempting to do, is that they acknowledge the hydrocarbon or petro dollar dependance that they hah, that they have and have had for a long time, and they’re expanding their sector exposures to tourism, to industrial, um, to retail, etc., and they’re bringing women into the workforce.  This is a very complicated subject to address in just a couple of moments, but it is really important relative to some of the more common stereotypes about women’s role in the middle east.  Saudi Arabia is actively working to empower women in the workforce and, and change some of the customs that the west has become more accustomed to sort of the, the Saudi Arabian stereotype.  So, if we look back into the 1960s and 1970s, and the economic drivers of the US baby boom, a key part of that was actually women shifting from being housewives to entering the workforce, and very amazingly, that’s one of the things that’s going to be happening in Saudi Arabia over the next decade as well.  So, we think these countries are creating economic stability by diversifying their economies and they’re accelerating economic growth by changing the dynamics of the workforce and ultimately that should really support equity evaluations, the opportunities for investigating in the equity markets and, and that’s what we’re very excited about today.

Elle Wu:          Now, we can’t talk about the middle east without talking about oil.  What do you think about Saudi Arabia in relation to today’s oil prices?

Josh Rubin:     That’s actually a really important point, and we don’t wanna run away from that fact.  What we think is really impressive about Saudi Arabia, um, the, the government’s commitment to diversifying the economy is, No. 1, we do tend to think about the volatility in oil prices as maybe driving volatility and economic growth across the middle east.  But actually, Saudi Arabia’s economy is fine if oil is $50.00.  Certainly, they’d prefer higher oil prices.  Opec recently cut production a little bit to support or maintain a higher oil price, but in general, we think the Saudi economy can be diversifying and growing even if oil prices are much lower.  Another thing that I think is a question that everybody may want to ask themselves is today what we really see is middle eastern countries, particularly Saudi Arabia and the United Arab Emirates making the necessary investments to increase their ability to grow oil production in the future.  They’re spending the Cap Ex to make that possible in 2025 and beyond.  At the same time, we’re really seeing most western oil companies doing share buybacks, paying big dividends or maybe investing in solar power or other renewables.  We certainly support the energy transition and actually, Saudi Arabia is embarking on its own energy transition, but for the next 10, 20, 50 years, the world is still going to need a lot of oil, and so what we really appreciate is Saudi Arabia is making the investments to grow its oil production to support the global economy.  At the same time, it’s making local investments to support its long-term economic opportunities as well.

Important Information

The views expressed are subject to change and do not necessarily reflect the views of Thornburg Investment Management Incorporated. This information should not be relied upon as a recommendation or investment advice and is not intended to predict the performance of any investment or market.

This is not a solicitation or offer for any product or service, nor is it a complete analysis of every material fact concerning any market, industry, or investment. Data has been obtained from sources considered to be reliable. Thornburg makes no representations as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein.

Investments carry risks, including possible loss of principal.

Outside the United States

This is directed to INVESTMENT PROFESSIONALS AND INSTITUTIONAL INVESTORS ONLY and is not intended for use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to the laws or regulations applicable to their place of citizenship, domicile, or residence.

Thornburg is regulated by the U.S. Securities and Exchange Commission under U.S. laws, which may differ materially from laws in other jurisdictions. Any entity or person forwarding this to other parties takes full responsibility for insuring compliance with applicable securities laws in connection with its distribution.

For Australia: Thornburg holds a foreign AFSL 526689.

For Hong Kong: This article is issued by Thornburg Investment Management (Asia) Limited (“Company”), a wholly-owned subsidiary of Thornburg Investment Management, Inc. The Company is currently licensed with the Hong Kong SFC for Type 1 and Type 9 regulated activity, with the CE No.: BPQ208.

The material is only intended for Individual, Corporate and Institutional Professional Investor Use Only and may not be reproduced or redistributed to any person without the written consent of Thornburg Investment Management (Asia) Limited or its affiliated companies.

The material has not been reviewed by the Securities and Futures Commission of Hong Kong. This document is for informational purpose only and should not intended to constitute any tax, accounting, regulatory, legal, insurance or investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product/service from the Company.

The information provided is not intended to predict the performance of any investment or market. Data has been obtained from sources considered reliable. Notwithstanding, the Company makes no representations as to the completeness or accuracy of such information or opinion and has no obligation to provide updates or changes. The Company does not accept any responsibility and cannot be held liable for any person’s use of or reliance on the information and opinions contained herein.

Investment involves risks. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. You should not make investment decision solely based on this general information. If you have any queries, please contact your financial advisor and seek professional advice. All financial investments involve an element of risk.