Alistithmar Capital: Saudi Arabia’s Tadawul needs more product diversity

ETFs, REITs and riyal-denominated bonds are needed to continue attracting investment to the kingdom, say Hesham Abou Jamee and Mazen Al-Sudairi

December 14, 2016

Saudi Arabia’s Vision 2030 is its deputy crown prince’s $2tr project to create a post-carbon future for the kingdom. Creating the largest sovereign wealth fund the world has seen, it’s a dramatic shift that has been welcomed by politicians and business people around the world. Hesham Abou Jamee and Mazen Al-Sudairi from investment company Alistithmar Capital discuss its impact. The renewed focus on education will help Saudi Arabia’s youth become the human capital designed to drive the oil-dependent kingdom’s economy forward. Reforms in land and investment regulation will unleash potential in religious tourism and real estate. And the ongoing shake-up in the Tadawul exchange will enhance business opportunities even further.

World Finance: Saudi Arabia’s Vision 2030 is its deputy crown prince’s $2tr project to create a post-carbon future for the kingdom. Creating the largest sovereign wealth fund the world has seen, it’s a dramatic shift that has been welcomed by politicians and business people around the world. With me to discuss its impact: Hesham Abou Jamee and Mazen Al-Sudairi of Alistithmar Capital.

Hesham: what are the highlights of Vision 2030? What are you most excited about?

Hesham Abou Jamee: 2030 focuses on education: how to have one of the best education systems in the world. We aim also to have five of our universities within the best 200 universities in the world.

Fifty percent of our population is below 25 years. By educating these people we can have a good future, and we can reach the 2030 goals.

Mazen Al-Sudairi: I totally agree with Hesham that human capital is the most important driver in our economy. For that the reforms create the basis of perpetual growth, which is the most important thing: education, enhancing transportation, infrastructure, communication to create an ICT economy. And regulation: we saw so many reforms last year.

The last thing is the R&D in Saudi Arabia. The weight of R&D is too low in Saudi Arabia, compared to GDP; and we hope to see Saudi Arabia as a big competitor to Korea after 10 years, to reach four percent investment to GDP.

World Finance: Naturally this is a long-term plan, but we’re already seeing some dramatic changes. So what are the sectors that are going to be benefiting in the next few years?

Mazen Al-Sudairi: Food and agriculture – it’s related to the population growth. The trade quality in Saudi Arabia is going to be enhanced, with the FDI that’s going to come, we’re going to see the creation of jobs, and we’re going to see new products and new markets.

For example, the land reforms that happened, to the investment in the holy cities. Those are going to drive so many sectors: for example the real estate sectors, the cement sector, the healthcare sector.

Banking is always banking: people are going to borrow and they’re going to deposit. And in Saudi Arabia we have one of the most solvent banking and monetary systems. So we could say the majority of sectors are going to benefit from the reforms. Some of them are going be in the mid-term, some of them are going to be in the long-term.

World Finance: The Saudi stock market has been responding positively to all of this news, but to really achieve its full potential, do some reforms need to be made there?

Mazen Al-Sudairi: Lately we have adapted to so many reforms in the Tadawul system, and this year they have accepted so many new products. But we believe that instead of equity assets, we need to attract many other products. For example, ETFs, REITs, riyal-denominated bonds. That’s going to attract so many investments to us.

Even related to the market cap. We have only one market. In so many emerging economies there is a market for small-cap, middle-cap. I think we need this step too.

These steps and reforms are going to enhance our stock market.

World Finance: So how does Alistithmar Capital translate that potential into returns for your investors?

Hesham Abou Jamee: Alistithmar Capital is an investment company owned 100 percent by the Saudi Investment Bank. Our market share currently is about 10 percent, and we rank number four between our competitors.

In brokerage we have a state of the art platform called Istithmarcom, which is one of the best platforms in the kingdom for local and international brokerage. We invest a lot on our platform. Actually, we spent a lot in the last few years in IT; but now we get the results.

In asset management we have very good, talented staff – most of them Saudi – with a high level of education and a high level of certification, like CFA.

In corporate finance we have a young team, but within two years we’ve had a lot of success in this field.

World Finance: You have been enjoying successes significantly above local benchmarks, so, what are your targets and what’s your strategy?

Hesham Abou Jamee: In asset management we have talented staff. That’s why we have achieved over the benchmark for the last two or three years. And our rank is number one or number two of all of our funds.

We created two real estate funds last year, and also two mutual funds. Both real estate and equity were the best funds in the kingdom.

In corporate finance we are trying to benefit now from SMEs and family companies. We have four or five companies between family and SMEs to be listed in 2017, with the new market.

World Finance: So how else is Alistithmar Capital differentiating itself from your competitors?

Hesham Abou Jamee: We don’t have any wall between us and our customers. We have good services. Most of our customers are high net-worth institutions. They find it easy to reach us; all our division heads, even me.

This year was a challenging year, because of the economic situation. But we have one of the best divisions in the kingdom, in asset management, in brokerage, in advisory, in corporate finance.

We try to be the best; we have to be creative in the market. And we hope that we will succeed in the future.

World Finance: Hesham, Mazen, thank you both very much.

Hesham Abou Jamee: Thank you Paul.

Mazen Al-Sudairi: Thank you.