Kamran Butt
AS investors we spend a lot of time thinking about long term investing and how we can capture value or growth at an early stage. Whether it is investing in disruptive technologies, sustainability or demographic trends. One very important find for investors is to hunt for secular growth stories in the markets. The significant distinction that investors have to understand is the difference between secular and cyclical trends.
Confusion between the two can result in lost profits or worse still, losses. Secular — occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time, on the other hand, cycle — a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly. All of us understand the concept of cyclical trends. The four seasons is a fine example — winter comes and goes and it will come back again. For the economy, booms are followed by busts, which are followed by booms again. Secular trends, by definition, are far less common.
And one secular growth trend we could be witnessing is that of Saudi Arabia. It is our observation that Saudi Arabia has reached an inflection point. With the view that oil and gas prices will not be at the same level witnessed in the last few decades, a momentum of policy change has been kicked off with wholesale changes being key for the economy. One has to look at the ‘Vision 2030’ and the ‘National Transformation Program’ to see the positive catalysts this could bring to the economy.
As the vision of 2030 will be an engine of programs such as to achieve fiscal restructuring which will be based on the reformed collaboration between the government, the private sector and the public. Every fabric of the country would be positively touched. This makes us excited from an investor’s point of view. The growth opportunities in the Kingdom are abundant, with demand and supply imbalances in most sectors, especially healthcare, education and consumer discretionary. So as economic policy is adapted to reflect this, the opportunity for investors becomes apparent.
To add to the ‘Fundamental’ story we have an imminent ‘Momentum’ story of that of liberalizations of the Kingdom’s Capital markets. At the core of the vision, there is a structural need for an efficient and deep Saudi Stock Exchange, driven by the need to privatize through mega IPOs in the hydrocarbon, healthcare, military and mining industries. In addition, there is a strong possibility that in the next 12-18 months Saudi Arabia stock market could be included in the MSCI EM index. In our view there has not been a market with the size and liquidity of that of the Saudi stock market to enter the index over the last decade. It will not and cannot be ignored by global EM investors when this event happens.
So with the combination of economic reforms and liberalization of the capital markets, in an environment of a stable currency pegged to the dollar, we clearly see a very viable secular growth story forming for Saudi Arabia that global investors will not choose to ignore.
— Kamran Butt, managing director head of advisory SEDCO Capital
