In case you were in any way unclear about this: Saudi stocks are super excited about the possibility of MSCI inclusion somewhere down the road and, more importantly, about Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman replacing his cousin Muhammad bin Nayef as heir to the throne.
The consolidation of power in bin Salman is being taken as a positive for markets, although his hawkish foreign policy bent certainly raises more questions than it answers given the current state of the two Sunni/Shiite proxy wars raging in the Mideast and the ongoing spat with Qatar.
“The nomination of Mohammed bin Salman as crown prince addresses one risk in the Saudi investment case,” Hasnain Malik, the head of global equities research at Exotix Partners LLP in Dubai, wrote in a note out Thursday, adding that “Saudi equities are cheap relative to history [and] banks screen particularly well.”
That said, Malik also notes that “risks to Saudi investment case remain including foreign and defense policy and domestic economic transformation.”
As a reminder, Bin Salman is the architect of “Vision 2030” aimed at reducing the kingdom’s dependence on oil and while that sounds good in theory, in practice it’s not easy. Additionally, implementing anything that even approximates austerity in the meantime (amid lower oil prices) jeopardizes social stability. That’s undesirable – who knows, you might even end up with people protesting which would really shock Wilbur Ross.
But for the time being, the party is on. Saudi stocks are up a staggering 9% on the week after the Tadawul All Share Index rose another 1.2% to today, extending Wednesday’s gains.
This is its best weekly performance since March 2011 and the best two-day run since 2014.