Saudi Arabia ETF Falters Following Credit Downgrade

The iShares MSCI Saudi Arabia Capped ETF (NYSEArca: KSA) fell Wednesday after Fitch Ratings lowered the kingdom’s credit rating by one level, citing concerns about falling oil prices and the ability of Saudi Arabia to bolster the non-oil sectors of its economy.

“Fitch lowered the kingdom’s long-term foreign and local currency ratings to A+ from AA- with a stable outlook. It noted the “continued deterioration of public and external balance sheets” as a reason for the cut,” reports Nicolas Parasie for MarketWatch.

Although Saudi Arabia is the largest producer in the Organization of Petroleum Exporting Countries (OPEC), KSA does not have a large weight to the energy sector. The only exchange traded fund dedicated to Saudi stocks follows the MSCI Saudi Arabia IMI 25/50 Index and has an energy weight of less than 0.6%. That is the ETF’s smallest sector allocation. KSA devotes over 72% of its combined weight to financial services and materials names.

After the non-OPEC producers’ cuts, total reduction now represents almost 2% of global supply. The reductions took effect January 1, and the oil producers will reconvene after six months to evaluate the results of the deal.