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Capturing opportunities in a transforming Saudi Arabia



Capturing opportunities in a transforming Saudi Arabia

You can now gain pure exposure to the Saudi Arabian equity market via our new Invesco MSCI Saudi Arabia UCITS ETF. This passive ETF is the first in Europe to offer targeted exposure to the largest economy in the Middle East. Capturing opportunities in a transforming Saudi Arabia.

Why Saudi Arabia?

  • Economy is undergoing major transformation

“Vision 2030” programme of social and economic reforms is intended to diversify the Saudi economy away from such a heavy reliance on oil and government funding. Domestically, this includes increasing use of solar and other renewable energy sources, and increasing the number of Saudis in private employment.

Internationally, they are trying to leverage the country’s unique geographical position between three continents, and encouraging major domestic corporations to expand across borders and into global markets. They also want to attract foreign investors and visitors.

Saudi Vision 2030 goals

Saudi Vision 2030 goals*20162030
Reducing unemployment11.6%7%
Increasing non-oil exports (% of GDP)36%50%
Increasing contribution of FDI (% of GDP)3.8%5.7%
Increasing private sector contribution (% of GDP)40%65%
Increasing annual visitors to Umrah8 million30 million

*Source: vision2030.gov.sa

  • IPO pipeline, including Aramco

The kingdom is planning to sell 5% of state-owned Saudi Aramco, partly to help fund the reform programmes. This could raise upwards of $100 billion, and is likely to be the largest IPO in history. This along with several other significant IPOs in the pipeline will expand the diversification of the index composition, open investment opportunities and increase the importance of the Saudi equity market for international investors.

  • Inclusion to MSCI Emerging Markets index should drive inflows

Since 2015, the government has introduced reforms to make it easier for foreign investors to gain meaningful access to the Saudi equity market. These have included easing requirements for foreign investors and bringing trade settlement more in line with global standards.
As a result, MSCI is considering reclassifying Saudi Arabia to Emerging Market status (from Standalone Market) when it announces the result of its annual review on 20 June 2018. If successful, as widely expected, Saudi Arabia will be included in the MSCI Emerging Market index from June 2019.

MSCI suggests the weighting of Saudi Arabia will be around 2.3% of the MSCI Emerging Markets index, placing it behind just South Africa and Russia among countries in the EMEA region. However, this proportion would rise significantly following the planned IPOs of Aramco and others.

  • What happens next?

Although past performance is in no way an indicator for the future, it is still worth looking at what happened when other Middle East countries went through similar exercises. Both the MSCI United Arab Emirates (UAE) and MSCI Qatar indices saw strong performances following the announcement by MSCI that they were going to be included in the Emerging Markets index.
The country indices benefited from investors beginning to increase exposure leading up to their inclusion in the MSCI Emerging Markets index a year later.

Source: Bloomberg. Past performance is not a reliable indicator of future returns.

Source: Bloomberg. Past performance is not a reliable indicator of future returns

Invesco MSCI Saudi Arabia UCITS ETF

This is the first Saudi Arabia ETF listed in Europe. It provides passive exposure to an MSCI index that has been capped to meet UCITS criteria and avoid over-concentration.

About the index

The MSCI Saudi Arabia 20/35 index comprises 32** large- and mid-cap stocks, covering approximately 85% of the free float-adjusted market capitalisation in Saudi Arabia. To ensure the index meets UCITS diversification requirements and avoids overconcentration:

  • The weight of the largest stock is constrained at 35%, and all other companies at 20%
  • An investability screen is applied to determine the universe of eligible index constituents
  • The index is reviewed and rebalanced quarterly.
    **Source: MSCI, as at 14 June 2018

Investment risk factors

As this is an emerging markets ETF, investors should be prepared to accept a higher degree of risk than for an ETF investing in the securities of issuers in other more established economies or developed countries, as difficulties in dealing, settlement and custody could arise.

The Fund is exposed to the risk of bankruptcy, or any other type of default of the counterparty related to any trading transaction entered into by the Fund.

In order to reach its investment objective, the Fund enters into swap agreements which provide the performance of the Reference Index, and may imply a range of risks which could lead to an adjustment or even the early termination of the swap agreement.

On-exchange liquidity may be limited due insufficient demand, Reference Index suspension, a decision by one of the relevant stock exchanges, or a breach by the market maker of respective stock exchange requirements and guidelines. This may result in share prices that differ significantly from the NAV.

Important information

Investors should note that the price of your investment may go down as well as up. As a result you may not get back the amount of capital you invest.

This communication contains information that is for discussion purposes only, and is intended only for professional investors pursuant to Directive 2004/39/EC (MIFID) Annex II Section I in Austria, Finland, Germany, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden and the UK, Qualified Clients in Israel, and Qualified Investors in Switzerland. The products may only be offered and the Key Investor Information Document (KIID) and prospectus (the “offering documents”) and marketing materials may only be distributed in other jurisdictions in compliance with private placement rules and local regulations. This communication is not for distribution to, or for the attention of, US or Canadian persons.

Without limitation, this communication does not constitute an offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on the final documentation and any prospectus relating to the transaction and not this summary.

Investment strategies involve numerous risks. Any calculations and charts set out herein are indicative only, make certain assumptions and no guarantee is given that future performance or results will reflect the information herein. Investors should consult their own business, tax, legal and accounting advisors with respect to this proposed transaction and they should refrain from entering into a transaction unless they have fully understood the associated risks and have independently determined that the transaction is appropriate for them. In no way should we be deemed to be holding out as financial advisers or fiduciaries of the recipient hereof.

UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.

The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The prospectus contains a more detailed description of the limited relationship MSCI has with Invesco and any related funds.

The offering documents and financial reports for the products are available at etf.invesco.com.

In Israel, the contents of this document are restricted to Qualified Clients (pursuant to the First Schedule to the Israeli Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995) only and are not intended for retail or private investors who are not Qualified Clients.

German investors may obtain the offering documents free of charge in paper or electronic form from the issuer or from the German information and paying agent (Marcard, Stein & Co AG, Ballindamm 36, 20095 Hamburg, Germany).

The representative and paying agent for the sub-funds of Invesco Markets plc, Invesco Markets II plc, and PIMCO Fixed Income Source ETFs plc in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The offering documents, articles of incorporation and annual and semi-annual reports may be obtained free of charge from the representative in Switzerland. The ETFs are domiciled in Ireland.

The publication of the supplement in Italy does not imply any judgment by CONSOB on an investment in a product. The list of products listed in Italy, and the offering documents for and the supplement of each ETF are available: (i) at etf.invesco.com (along with the audited annual report and the unaudited half-year reports); and (ii) on the website of the Italian Stock Exchange borsaitaliana.it.

All investment decisions must be based only on information contained in the prospectus, the KIID/KID, the supplement and in the most recent audited annual report or unaudited semi-annual report. Investors should read the specific risks of any product they plan to invest in, which are noted in the prospectus, the KIID and the supplement. Past performance does not guarantee similar future performance. For details on fees and other charges, please consult the prospectus, the KIID and the supplement of each product.

This communication has been communicated by Invesco UK Services Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, authorised and regulated by the Financial Conduct Authority; Invesco Asset Management Deutschland GmbH, An der Welle 5, 60322 Frankfurt am Main, Germany; Invesco Asset Management SA, 16-18 rue de Londres, 75009 Paris, France; and Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom. Authorised and regulated by the Financial Conduct Authority.

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