Industry Updates

Saudi Arabia ETFs suffer outflows amid credit downgrade

Tom Eckett

a clock tower in Abraj Al Bait

All three pure-play Saudi Arabia ETFs available on the European market suffered outflows last week following a downgrade to its credit rating by Fitch Ratings.

According to data from Ultumus, the $781m Invesco MSCI Saudi Arabia UCITS ETF (MSAU) saw $228m outflows in the week to 4 October, the most out of the three ETFs.

BlackRock’s $526m iShares MSCI Saudi Arabia Capped UCITS ETF (IKSA) witnessed $86m outflows while the $14m HSBC MSCI Saudi Arabia 20/35 Capped UCITS ETF (HSMA) saw $9m redemptions taking the total outflows across all three ETFs to $323m.

The outflows come after Fitch Ratings downgraded the Kingdom’s credit rating from ‘A+’ to ‘A’ on 30 September amid rising geopolitical and military tensions in the Gulf and a “deterioration” in the country’s fiscal balance sheets.

Fitch commented: “Saudi Arabia is vulnerable to escalating geopolitical tensions given its prominent foreign policy stance, including its close alignment with US policy on Iran and its continued involvement in the Yemen war.

“We see a risk that the US and Saudi Arabia could be drawn into a deeper conflict with Iran, as Iran or groups linked to Iran continue to seek to break the diplomatic impasse over regional security and nuclear issues.”

Warning buyers beware when investing in Saudi Arabia ETFs

Saudi Arabia ETFs captured the minds of investors during the first half of the year with IKSA and MSAU both shooting over $1bn assets under management (AUM).

These flows were largely driven by S&P Dow Jones Indices, MSCI and FTSE Russell’s decision to include the country in its major emerging market indices. It was estimated Saudi Arabia equities benefitted from a $20bn windfall from passives due to the inclusions.

However, the performance has reversed since the start of the summer with the MSCI Saudi Arabia 20/35 Capped Net Return USD index giving up almost all of its returns this year.

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