Market Review and Outlook

Saudi Macro and Equity Market

Climbing Up the Ladder

As investors increase scrutiny on government finances, Saudi Arabia emerges unscathed and even stronger. Last week, Moody’s Investors Service raised the Kingdom’s rating by one level from A1 with a stable outlook, to Aa3, the fourth highest grade. The move was prompted by “strong government finances, which have largely withstood oil price volatility and the global economic crisis.” Also reassuring is the economic outlook over the coming years. First, oil prices are expected to average USD75/bbl in 2010, which is significantly higher than the USD61/bbl of last year. With stronger oil revenues, the erosion in net foreign assets seen over 2009 should abate in 2010. This is already apparent, as net foreign assets have increased to USD 435bn in Dec09 from USD 404bn only 3 months earlier. Second, gross domestic debt (as a percentage of GDP) has declined from 82% in 2003 to 16.25% in 2009. This is a clear indication of the government’s commitment to fiscal rectitude, which provides crucial reassurance to investors. Finally, FDI has been playing a larger role in the Kingdom, having increased from USD 24bn in 2007 to USD 38bn in 2008. These factors demonstrate the Kingdom’s ability to contain shocks emanating from the global crisis; and it is this resilience which supports Saudi Arabia’s positive economic outlook.