By Samar Yahya

RIYADH — “There is a trend to provide better access to finance that can benefit for example SMEs, said Michael Bolliger, head of asset management in emerging markets, UBS to Saudi Gazette during his recent visit to Riyadh on how he sees the financial reforms in Saudi Arabia in the last 18-24 months.

He added that “maybe this year we will see Aramco issuing bonds worth possibly around $10 billion.”

Bolliger opined that the government should work hand-in-hand with the private sector making sure that a healthy private sector starts investing in local companies.

“Saudi Stock Exchange had a significant year with the MSCI inclusion and there has been fast money positioning before and after the announcements from MSCI and then from FTSE and the real money investment coming in is yet to follow. In terms of inflows, there are a few things you would want to monitor to assess that, such as what is the amount of passive money. The active money could be around 35 – 40 billion which is bigger but they do not necessarily need to go to 100% allocation.”

“Based on anecdotal evidence, people are not expected to go for a full allocation, at least not immediately and this again could be another tens of billions of dollars.”

“On the day of the inclusion, some fast money and hedge funds will be leaving, and others will be coming in as well, so the balance is more inflows than outflows.”

On the upgrade of Saudi in MSCI and the inclusion of Saudi Arabia in the EM Index, Bolliger said “it will depend on how many IPOs will we see. There is obviously Aramco...but there are other entities like postal, electricity and there is even soccer clubs that can be privatized. The likelihood that the index is growing is still there. I think, even if Aramco never came to the market, it could still grow because of other IPOs”.

Moreover, Bolliger said many emerging markets issues coming to the market are very positively received. “I think people are still interested in adding exposure to the region and the rest will depend on the nitty-gritty details of the deal, if they come tomorrow with a reasonable price, I am sure it is going to be positively received,” he said on his expectations on market changes when Aramco goes for IPO.

Looking at earnings’ expectations and earnings growth, Saudi Arabia looks a lot better than the UAE for example. “So obviously you want to look at the technical factors and that the picture is dynamic and evolving and can change anytime.”

He added that “the earnings outlook is going to be super crucial and that for now I believe is intact. We will see growth for Saudi Arabia at around 2% this year, if they succeed in this transformation.”

“Currently the Saudi government acts from a position of strength, fiscal metrics, are very strong and that puts them in almost a unique position globally to stimulate growth for the next few years.” Bolliger pointed out.

On the GCC, Bolliger sees a lot of trends that will affect the entire region such as energy and oil prices, “where we see equilibrium prices of $70-$80 per barrel which I think is positive, for most of them.”

“In Bahrain we have a bit of old investments and I think Bahrain has made quite a bit of progress already and it might be due to the GCC loan. Oman would be great, if they could show some progress. They very recently announced that they want to issue less in the first half of this year, which has been received very positively by investors. Elsewhere, I would say UAE is pretty much in focus these days because of real estate. Saudi Arabia has similar dynamics in the real estate market, but UAE, from an international point of view, is a bit more prominent because of more foreign real estate investors in Dubai and elsewhere in the UAE, with around 3%. So, it feels like we are moving in sort to the right direction.”

On UBS opportunities in emerging market, Bolliger said they had a very difficult year last year globally. There might be some progress now but there are still underlying issues that will linger for some time and that could again result in volatility and setbacks in emerging markets.

“We see interesting opportunities in the GCC overall, Brazil and South Africa as well as China. The biggest EM market will clearly benefit from the MSCI inclusion of Asia. So there are quite a few pockets of opportunities that savvy EM investors can benefit from,” he noted.