RIYADH – Investment in infrastructure projects could provide a significant opportunity for investors in Saudi Arabia as government spending is set to touch SR1 trillion ($266.6 billion) in 2013, according to Emirates NBD Wealth Management, a part of the Middle East's leading bank. Speaking at an investor road show in Riyadh, Mark McFarland, Chief Investment Strategist, Emirates NBD Wealth Management, said: “Across the GCC, Government spending will be a key driver of GDP growth in 2013, as regional economies focus on upgrading their physical infrastructure and social facilities in line with world class standards. This is particularly true of Saudi Arabia, where public spending is set to increase by 15 percent from 2012, to touch SR1 trillion. Much of this investment will be directed toward construction of residential, educational and health facilities and improvement of transport infrastructure.” Other GCC countries that could benefit from increased government spending and resultant public sector job creation include Qatar and Oman. McFarland underlined that the increase in government spending will be driven partly by higher oil prices but the improved outlook for value-added petrochemicals, and Saudi Arabia's plans to reduce dependency on hydrocarbon markets, suggest that the investment will be sourced more broadly than in the past. This reduces the onus placed on oil revenues to fund development. “With growth returning to world markets and oil prices high, Saudi Arabian equities offer great value for investors,” he said, adding that “petrochemicals are good value and banks will benefit from increased activity in the financial and real estate markets.” Commenting on the outlook for oil production, McFarland said: “With slower global industrial growth and falling demand, oil production in 2013 is expected to remain largely unchanged in most of the GCC economies including Saudi Arabia. The only exception is Qatar, whose recent expansion of its LNG capacity means it is approximately 50 per cent of its GDP.” The underlying valuation of KSA markets relative to other Frontier Markets suggests that investors need to look closely at opportunities in Saudi Arabia, said McFarland. He emphasized that the KSA markets offer better credit quality while there is no exchange rate risk as compared to the markets in Eastern Europe, for example. In particular investment opportunities in real estate, which McFarland said, is beginning to pick up across the GCC, particularly in Saudi Arabia and the UAE. “Property is cheap in KSA – relative to the UAE and Qatar - and in demand from a population enjoying higher incomes and better access to financing options,” he added. In general, investors need to run a balanced portfolio of multiple asset classes and geographies in 2013, with Emerging Market equities and commodities being preferred to US and European fixed income securities, according to Emirates NBD Wealth Management. “Looking at world markets, we see investment opportunities in equities and commodities across the globe; including MENA, where we favor high dividend equities over fixed income,” he said. From a commodity perspective, and in keeping with the need to capture emerging growth or recovery, he favors palladium, agricultural, cyclical and industrial vehicles all of which have a direct correlation with Chinese recovery. – SG
