(MENAFN - Arab News) Saudi Arabia is well cushioned in comparison to other GCC countries with regard to sovereign wealth funds (SWFs) as it has limited exposure to euro zone debt crisis, according to analysts.
Their remarks came as regional media reported Wednesday that the SWFs are likely to suffer losses from the lingering debt crisis. The G20 summit, which begins Thursday, will be dominated by European debt problems, economists said.
"Saudi Arabia's SWF is managed by SAMA (Saudi Arabian Monetary Agency), one of the most well-regarded central bank in the region. The most-at-risk SWFs are from the UAE, Kuwait and Qatar, who are semi-independent from the government, and have aggressively expanded their overseas portfolio in the recent past," Khan H. Zahid, vice president & chief economist at Riyad Capital, told Arab News.
He added: "The main impact on Saudi Arabia would be through the likely fall in global oil prices, which may reduce its oil revenues. However, Saudi Arabia's accumulated cushion of foreign assets - SR2 trillion at last count - will tide over any short-term difficulties."
According to official data, Saudi Arabia's foreign assets gained nearly SR74 billion to cross the SR2 trillion-mark for the first time in September. The assets, controlled by SAMA, were at SR1,926 billion at the end of August. However, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said: "The large institutional investors in the Gulf are indeed to varying degrees vulnerable in the face of the renewed European crisis. While many are likely to have refined their strategies and changed focus toward the emerging markets earlier during the crisis, Europe remains a large element in the global investible universe."
He said: "Any investor with a diversified portfolio is likely to have a substantial exposure to the EU which, after all, is home to the world's second most important currency and some of the most liquid financial markets."
Kotilaine said, paradoxically, while Europe's woes will engender potentially substantial losses, they will also represent opportunities. Sharp market corrections, when driven by exceptional risk aversion, tend to create longer-term value potential due to overshooting.
Even though the crisis is likely to make the emerging markets look even better than before, there are almost certain to be exceptional and highly attractive opportunities in Europe which, along with value potential, can come with considerable know-how, brand reputation, and market footprint, he added.
"As great as the temptation to retreat from European risk may be, we could in fact be looking at unparalleled openings to increase a presence there. After all, some basic fundamentals in terms of demographics, infrastructure, and physical capital will remain even in the face of a major economic storm. Institutional investors are better positioned to capitalize on these than governments," Kotilaine said.
In a sign of strengthening investor confidence, Saudi Arabian market closed higher on Wednesday, supported by gains in world stocks and higher oil prices. Saudi Basic Industries Corp. (SABIC) added 1.3 percent after the petrochemicals producer launched a new venture capital arm to invest in new technology.
The Tadawul All-Share Index (TASI) rose 1 percent to 6,215.67, trimming 2011 losses so far to 6.1 percent. It ended lower on the previous three days after hitting a 12-week closing high of 6,236 points on Saturday.
Al-Rajhi Bank, the largest listed lender by market value, was the main support, rising 1.8 percent. Samba Financial Group gained 3.8 percent and Banque Saudi Fransi climbed 3.5 percent.
SAMA Gov. Muhammad Al-Jasser said he is optimistic Europe's leaders will take the right measures to tackle their debt crisis.
While the EU economic slowdown means slackening oil demand and consequently lower crude prices, Gulf countries and other OPEC members have taken measures to offset the crisis and keep prices strong, Mohammed Al-Asumi, a former adviser at the Dubai Executive Office and head of economic research at the state-run Emirates Industrial Bank, was quoted by regional press as saying.
