The Saudi Arabia country-specific exchange traded fund surged Monday on prospects the kingdom will enact economic reforms to gradually diversify away from its reliance on crude oil.
The iShares MSCI Saudi Arabia Capped ETF (NYSEArca: KSA) rose 4.9% on Monday. KSA increased 18.2% over the past three months but it was still down 4.1% year-to-date.
Saudi Arabia’s equities market popped Monday after Deputy Crown Prince Mohammed bin Salman announced the so-called Saudi Vision 2030 economic plan, reports Celine Aswad for Reuters.
“The main theme of Vision 2030 is to diversify, liberalize and reform the Saudi economy, and the reliance on oil income will gradually fall,” Shakeel Sarwar, head of asset management at Bahrain’s Securities and Investment Co., told Reuters.
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The plan could raise the country’s share of non-oil exports in non-oil gross domestic product to 50% from 16%, CNBC reports.
The reforms would include restructuring of the government’s Public Investment Fund to make it the “largest sovereign wealth fund in the world,” a planned sale of less than 5% in its national oil giant Saudi Aramco, an increase of affordable housing and a “green card” system for expatriates long-term residence. The proposals would help diversify the economy through renewable energy and industrial sectors and create high-quality tourism.
The economic reforms may still be viable even with a prolonged low energy environment.
“We can achieve this vision even if oil is lower than $30. We think it is almost impossible to go under $30 because of global demand,” Prince Mohammed said in the news conference. “The plan can deal with any price, $30, $28, $70… but the plan was made with $30 in mind.”
Despite the country’s large energy industry, the Saudi Arabia ETF includes a small 1.4% tilt toward the energy sector. The privatization of the national oil company could eventually trickle into the ETF. However, for now, KSA’s largest sector tilts include financials 31.7%, materials 30.2% and telecom services 12.1%.
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