“Falcom won approval and successfully launched two Saudi Arabian specific Exchange Traded Funds (ETFs), just three months apart,” said Shankar Biswas, head of marketing of Falcom Financial Services, a Saudi Arabian investment bank. “This is a way for foreign investors to participate in the Saudi stock market in a quick and cost effective way. There is a strong global appetite for the Saudi stock market and as greater depth and value is created, there will be more interest.”
The first to be launched was the Falcom Saudi Equity ETF, which passively invests in the top 30 listed Saudi stocks in order to replicate the performance of the index. The second Falcom ETF is focused on the petrochemical sector with Saudi Arabian Basic Industries Company (SABIC) leading the 14-stock portfolio. Although individual stock purchases remain beyond foreigners’ reach, both of these new ETFs are open to overseas investment.
The creation of the ETFs were particularly challenging, according to Adeeb Al Sowailim, ceo of Falcom, “Innovation is the key, with the ETF we had to invent as well as invest in a whole new risk management tool, as classical models fell short as derivatives and other hedging instruments are not allowed under shariah law neither is shorting allowed.” The upshot is that both ETFs are shariah-compliant.
The performance of the Falcom ETFs has been questionable to date. But unsurprisingly the Saudi stock market’s fortunes dance in rhythm with the price of crude oil. In the medium-term, there should be room for modest growth driven by the conservatively run banking sector and consumer demand from the youth-heavy population. What’s more, according to recent studies, the Gulf Cooperation Council plans to increase output of petrochemical products by almost two-thirds by 2012. Alongside this, the major markets, Europe, the US, Japan and China are all forecasting continued growth in their demands for petrochemical products. Therefore the Saudi market is ripe for expansion and Falcom’s ETFs are perfectly positioned to allow investors to take full advantage of that.
WHO Falcom Financial Services in Saudi Arabia
WHAT Falcom Saudi Equity ETF & Falcom Saudi Petrochemical ETF
WHEN The first ETF was launched in March 2010, the second in June 2010
WHY The ETFs will help diversify Tadawul’s investor base, increase liquidity and reduce the speculation in the long term. This bodes well for the Saudi Arabian market’s future.
www.falcom.com.sa
