Saudi investments could double if market opens, says Mobius

Zawya Dow Jones/Dubai

Franklin Templeton’s investments in Saudi Arabia could double if the country allows foreign investors unfettered access to its stock market, Mark Mobius, the executive chairman of the US asset manager’s emerging markets group, said yesterday.

Saudi authorities have been studying opening the market for years. Direct investment is currently restricted to locals, although foreigners can get exposure to it indirectly through swap contracts introduced in 2008. Mobius, who manages Franklin Templeton’s emerging markets portfolios, said at a press conference that the firm had about $400mn in Saudi, but that the nature of the swap contracts put limits on further investment.

“When and if Saudi Arabia opens so that we can freely invest, despite the fact that we have so much now already, we would probably double that if the market was fully opened,” he said.

The issue with the swaps was that they involved taking on counterparty risk, Mobius said. Under the current structure, Franklin Templeton must get exposure to Saudi through swaps concocted by banks instead of putting money directly into stocks.

“We have prudential limits for how much counterparty exposure we can have,” he said. “We don’t want to put a whole bunch of money - even though JPMorgan Chase is a very good bank - we don’t want to have that risk with any bank, whether it be Chase, Bank of America or Citibank or any of these banks.”

Mobius, who was in Dubai to launch three new Shariah-compliant investment funds, added that he had talked to a local Saudi bank this week and was told the market would open next year at the latest.

Anticipation about the opening has intensified since the appointment in February of a new head of the country’s markets regulator, the Capital Market Authority. Mohammed bin Abdulmalik al-Sheikh was tasked with opening the market within a year, a Saudi executive familiar with the matter told Zawya Dow Jones.