Etikett: Middle East

Capturing opportunities in a transforming Saudi Arabia

Capturing opportunities in a transforming Saudi Arabia ETFYou can now gain pure exposure to the Saudi Arabian equity market via our new Invesco MSCI Saudi Arabia UCITS ETF. This passive ETF is the first in Europe to offer targeted exposure to the largest economy in the Middle East. Capturing opportunities in a transforming Saudi Arabia.

Why Saudi Arabia?

  • Economy is undergoing major transformation

“Vision 2030” programme of social and economic reforms is intended to diversify the Saudi economy away from such a heavy reliance on oil and government funding. Domestically, this includes increasing use of solar and other renewable energy sources, and increasing the number of Saudis in private employment.

Internationally, they are trying to leverage the country’s unique geographical position between three continents, and encouraging major domestic corporations to expand across borders and into global markets. They also want to attract foreign investors and visitors.

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*Source: vision2030.gov.sa

  • IPO pipeline, including Aramco

The kingdom is planning to sell 5% of state-owned Saudi Aramco, partly to help fund the reform programmes. This could raise upwards of $100 billion, and is likely to be the largest IPO in history. This along with several other significant IPOs in the pipeline will expand the diversification of the index composition, open investment opportunities and increase the importance of the Saudi equity market for international investors.

  • Inclusion to MSCI Emerging Markets index should drive inflows

Since 2015, the government has introduced reforms to make it easier for foreign investors to gain meaningful access to the Saudi equity market. These have included easing requirements for foreign investors and bringing trade settlement more in line with global standards.
As a result, MSCI is considering reclassifying Saudi Arabia to Emerging Market status (from Standalone Market) when it announces the result of its annual review on 20 June 2018. If successful, as widely expected, Saudi Arabia will be included in the MSCI Emerging Market index from June 2019.

MSCI suggests the weighting of Saudi Arabia will be around 2.3% of the MSCI Emerging Markets index, placing it behind just South Africa and Russia among countries in the EMEA region. However, this proportion would rise significantly following the planned IPOs of Aramco and others.

  • What happens next?

Although past performance is in no way an indicator for the future, it is still worth looking at what happened when other Middle East countries went through similar exercises. Both the MSCI United Arab Emirates (UAE) and MSCI Qatar indices saw strong performances following the announcement by MSCI that they were going to be included in the Emerging Markets index.
The country indices benefited from investors beginning to increase exposure leading up to their inclusion in the MSCI Emerging Markets index a year later.

Source: Bloomberg. Past performance is not a reliable indicator of future returns.

Source: Bloomberg. Past performance is not a reliable indicator of future returns

Invesco MSCI Saudi Arabia UCITS ETF

This is the first Saudi Arabia ETF listed in Europe. It provides passive exposure to an MSCI index that has been capped to meet UCITS criteria and avoid over-concentration.

About the index

The MSCI Saudi Arabia 20/35 index comprises 32** large- and mid-cap stocks, covering approximately 85% of the free float-adjusted market capitalisation in Saudi Arabia. To ensure the index meets UCITS diversification requirements and avoids overconcentration:

  • The weight of the largest stock is constrained at 35%, and all other companies at 20%
  • An investability screen is applied to determine the universe of eligible index constituents
  • The index is reviewed and rebalanced quarterly.
    **Source: MSCI, as at 14 June 2018

Investment risk factors

As this is an emerging markets ETF, investors should be prepared to accept a higher degree of risk than for an ETF investing in the securities of issuers in other more established economies or developed countries, as difficulties in dealing, settlement and custody could arise.

The Fund is exposed to the risk of bankruptcy, or any other type of default of the counterparty related to any trading transaction entered into by the Fund.

In order to reach its investment objective, the Fund enters into swap agreements which provide the performance of the Reference Index, and may imply a range of risks which could lead to an adjustment or even the early termination of the swap agreement.

On-exchange liquidity may be limited due insufficient demand, Reference Index suspension, a decision by one of the relevant stock exchanges, or a breach by the market maker of respective stock exchange requirements and guidelines. This may result in share prices that differ significantly from the NAV.

Important information

Investors should note that the price of your investment may go down as well as up. As a result you may not get back the amount of capital you invest.

This communication contains information that is for discussion purposes only, and is intended only for professional investors pursuant to Directive 2004/39/EC (MIFID) Annex II Section I in Austria, Finland, Germany, Italy, Luxembourg, the Netherlands, Norway, Spain, Sweden and the UK, Qualified Clients in Israel, and Qualified Investors in Switzerland. The products may only be offered and the Key Investor Information Document (KIID) and prospectus (the “offering documents”) and marketing materials may only be distributed in other jurisdictions in compliance with private placement rules and local regulations. This communication is not for distribution to, or for the attention of, US or Canadian persons.

Without limitation, this communication does not constitute an offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on the final documentation and any prospectus relating to the transaction and not this summary.

Investment strategies involve numerous risks. Any calculations and charts set out herein are indicative only, make certain assumptions and no guarantee is given that future performance or results will reflect the information herein. Investors should consult their own business, tax, legal and accounting advisors with respect to this proposed transaction and they should refrain from entering into a transaction unless they have fully understood the associated risks and have independently determined that the transaction is appropriate for them. In no way should we be deemed to be holding out as financial advisers or fiduciaries of the recipient hereof.

UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.

The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI, and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The prospectus contains a more detailed description of the limited relationship MSCI has with Invesco and any related funds.

The offering documents and financial reports for the products are available at etf.invesco.com.

In Israel, the contents of this document are restricted to Qualified Clients (pursuant to the First Schedule to the Israeli Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995) only and are not intended for retail or private investors who are not Qualified Clients.

German investors may obtain the offering documents free of charge in paper or electronic form from the issuer or from the German information and paying agent (Marcard, Stein & Co AG, Ballindamm 36, 20095 Hamburg, Germany).

The representative and paying agent for the sub-funds of Invesco Markets plc, Invesco Markets II plc, and PIMCO Fixed Income Source ETFs plc in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The offering documents, articles of incorporation and annual and semi-annual reports may be obtained free of charge from the representative in Switzerland. The ETFs are domiciled in Ireland.

The publication of the supplement in Italy does not imply any judgment by CONSOB on an investment in a product. The list of products listed in Italy, and the offering documents for and the supplement of each ETF are available: (i) at etf.invesco.com (along with the audited annual report and the unaudited half-year reports); and (ii) on the website of the Italian Stock Exchange borsaitaliana.it.

All investment decisions must be based only on information contained in the prospectus, the KIID/KID, the supplement and in the most recent audited annual report or unaudited semi-annual report. Investors should read the specific risks of any product they plan to invest in, which are noted in the prospectus, the KIID and the supplement. Past performance does not guarantee similar future performance. For details on fees and other charges, please consult the prospectus, the KIID and the supplement of each product.

This communication has been communicated by Invesco UK Services Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, authorised and regulated by the Financial Conduct Authority; Invesco Asset Management Deutschland GmbH, An der Welle 5, 60322 Frankfurt am Main, Germany; Invesco Asset Management SA, 16-18 rue de Londres, 75009 Paris, France; and Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire, RG9 1HH, United Kingdom. Authorised and regulated by the Financial Conduct Authority.

Introducing the first Saudi Arabia ETF in Europe

Introducing the first Saudi Arabia ETF in Europe

Saudi Arabia is in the early stages of a huge social and economic transformation, and you can now gain exposure to the growth opportunities through our new fund. This is the first ETF in Europe that provides access to the Middle East’s largest economy. Introducing the first Saudi Arabia ETF in Europe.

Find out:

• What’s driving the growth in Saudi Arabia
• Why we think it’s worth considering investing in Saudi Arabia
• About the index and our Saudi Arabia ETF

Product description

The Invesco MSCI Saudi Arabia UCITS ETF aims to provide the performance of the MSCI Saudi Arabia 20/35 Capped Index, after the impact of fees.

The MSCI Saudi Arabia 20/35 Capped Index captures the large and mid-cap securities of the Saudi Arabia market. The weight of the largest group entity in the index is constrained to 35% and the weights of all other entities are constrained to a maximum of 20%. The index covers approximately 85% of the free float-adjusted market capitalization in Saudi Arabia.

Find out more

Investment risks

Investors should note that the price of your investment may go down as well as up. As a result, you may not get back the amount of capital you invest.

As this is an emerging markets ETF, investors should be prepared to accept a higher degree of risk than for an ETF investing in the securities of issuers in other more established economies or developed countries, as difficulties in dealing, settlement and custody could arise.

The Fund is exposed to the risk of bankruptcy, or any other type of default of the counterparty related to any trading transaction entered into by the Fund.

In order to reach its investment objective, the Fund enters into swap agreements which provide the performance of the Reference Index, and may imply a range of risks which could lead to an adjustment or even the early termination of the swap agreement.

On-exchange liquidity may be limited due insufficient demand, Reference Index suspension, a decision by one of the relevant stock exchanges, or a breach by the market maker of respective stock exchange requirements and guidelines. This may result in share prices that differ significantly from the NAV.

Important information

By accepting this document, you consent to communicating with us in English, unless you inform us otherwise.

This email contains information that is for discussion purposes only, and is intended only for professional investors pursuant to Directive 2004/39/EC (MIFID) Annex II Section in Austria, Belgium, Finland, France, Germany, Italy, Luxembourg, the Netherlands, Norway, Sweden and the UK, Qualified Clients in Israel, and Qualified Investors in Switzerland. Without limitation, this e-mail does not constitute an offer or a recommendation to enter into any transaction. When making an investment decision, you should rely solely on the final documentation and any prospectus relating to the transaction and not this summary. Investment strategies involve numerous risks. Any calculations and charts set out herein are indicative only, make certain assumptions and no guarantee is given that future performance or results will reflect the information herein. Investors should consult their own business, tax, legal and accounting advisors with respect to this proposed transaction and they should refrain from entering into a transaction unless they have fully understood the associated risks and have independently determined that the transaction is appropriate for them. In no way should we be deemed to be holding out as financial advisers or fiduciaries of the recipient hereof.

UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.

The offering documents and financial reports for the products are available at etf.invesco.com.

German investors may obtain the offering documents free of charge in paper or electronic form from the issuer or from the German information and paying agent (Marcard, Stein & Co AG, Ballindamm 36, 20095 Hamburg, Germany).

In Israel, the contents of this document are restricted to Qualified Clients (pursuant to the First Schedule to the Israeli Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995) only and are not intended for retail or private investors who are not Qualified Clients.

The representative and paying agent for the sub-funds of Invesco Markets plc, Invesco Markets II plc, and PIMCO Fixed Income Source ETFs plc in Switzerland is BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich, Switzerland. The offering documents, articles of incorporation and annual and semi-annual reports may be obtained free of charge from the representative in Switzerland. The ETFs are domiciled in Ireland.

The publication of the supplement in Italy does not imply any judgment by CONSOB on an investment in a product. The list of products listed in Italy, and the offering documents for and the supplement of each ETF are available: (i) at etf.invesco.com (along with the audited annual report and the unaudited half-year reports); and (ii) on the website of the Italian Stock Exchange borsaitaliana.it.

All investment decisions must be based only on information contained in the prospectus, the KIID/KID, the supplement and in the most recent audited annual report or unaudited semi-annual report. Investors should read the specific risks of any product they plan to invest in, which are noted in the prospectus, the KIID and the supplement. Past performance does not guarantee similar future performance. For details on fees and other charges, please consult the prospectus, the KIID and the supplement of each product.

Attractive risk-adjusted yields in emerging markets

Attractive risk-adjusted yields in emerging markets

ETF Securities Fixed Income Research – Attractive risk-adjusted yields in emerging markets

Summary

  • The shock to global markets from Brexit has raised expectations for more central banks’ intervention and sharpened the search for yield among investors.
    Middle East
  • Turkey’s political risk is likely to have a limited impact on EM outside of the. The Chinese economy and Fed policy will remain the main drivers for EM debt returns.
  • The slowdown of global growth favours duration risk over growth risk. Emerging sovereign bonds are attractively valued compared to emerging equities.

1990’s lessons learned

Emerging Markets (EM) learned the lessons from the Asian Crisis of the late 1990’s, particularly from an external financing perspective. Notwithstanding regional variation, in general emerging countries have built higher stocks of currency reserves and are less reliant on short term debt, particularly in hard currencies than in the past.
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As a rule of thumb, EM countries with robust fundamentals – solid internal (positive fiscal balance) and external conditions (positive current accounts balance) – are far more resistant to rate shocks. In March 2015 when the Fed started to signal an imminent lift-off, EM countries with stronger current account positions experienced lower currency depreciation than those with large external imbalances.

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Turkey’s assets under pressure

The attempted coup which was carried out on Friday 15 July resulted in a 4.8% drop in the Turkish lira against the US dollar on the day. On Wednesday 20 July, S&P downgraded Turkey’s local currency denominated debt one notch to BB+ and maintained its negative outlook. The Turkish lira weakened by 1.1% to 3.0755 against the US dollar on the move. Turkey is running the largest current account deficit among the emerging countries (-4.5% of GDP as of July 2016) and has relatively low currency reserves. Given the sharp rise in political instability and deeper external imbalances, Turkish assets and the Turkish lira are likely to remain under pressure going forward. However, any spill over effects from the events in Turkey toward the other EM countries should remain limited outside of the Middle East region.

China is the main driver behind EM returns

The slowdown of the Chinese economy has already been priced-in into the market early this year. However, the Chinese economy has exhibited signs of stabilisation since then. Chinese GDP grew by 6.7%yoy and industrial production rose by 6.2%yoy. The Chinese authorities have continued to provide fiscal and monetary policies to support short term growth. In June, fiscal expenditure growth grew by 20.3%, money supply (M2) grew by 11.8% and total social financing (TSF, i.e. credit growth) increased RMB1630bn. The very large amount of total debt in China (in excess of 260% of GDP) raises concerns for growth over the long term but is manageable in the short term thanks to decent fiscal space (i.e. low level of government debt1).

Stability of the Yuan is essential for the stability of EM currencies. In our view, further devaluations of the Yuan are unlikely as China has low incentive to do so. As a large importer, China has limited incentive to devalue further because higher imports prices will cause a deterioration of the current account balance. China runs a trade surplus so if anything the Yuan should appreciate as the demand for the Yuan to pay exporters exceeds the need for foreign currencies to pay imports. As a result, EM local currency risk looks contained in the near term.

What if there is another rate shock?

The US dollar stability is also crucial for the stability EM currencies. So far, the procrastination of the Fed in hiking interest rates has prevented the US dollar from appreciating further, in turn reducing the volatility of EM currencies. We expect one additional 25bps rise in the Fed funds rate this year along with an accelerating US economy. In our opinion, this should only result in a modest appreciation of the dollar. In general, a stronger US dollar tends to challenge EM assets, but it depends on the basis for the strengthening. The U.S dollar is currently appreciating because of continued expansion in the US – a supportive environment for global trade. Exporters will benefit from increasing competitiveness and increasing US demand. However, those that rely on hard currency short term external financing (i.e. Turkey, Mexico, South Africa) would be the most vulnerable.

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The Latam region has been the most vulnerable to higher US rates in recent years. Latam countries face sizeable domestic economic and political vulnerabilities that tend to exacerbate capital outflows during times of market stress. Latam markets are also more liquid than their peers and are thus easier to short in times of stress.

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Search for yield will continue in the medium term

The market shock resulting from Brexit drove expectations for more central bank intervention and sharpened the search for yield. We maintain our long-term positive view on EM debt for three main reasons. First, most EM have limited exposure to the UK economy. Second, lower inflation in EM countries permit looser monetary policy which should support near term growth. Third, valuation of EM debt remains attractive relative to EM equity markets. While the Bond Equity Earnings yield ratio is declining rapidly, it is still greater than 1, implying that EM equities are overvalued relative to EM sovereign bonds.
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Conclusion

The fundamentals of EM countries are more robust than in the 1990’s, limiting the risk of a crisis. The low yield environment will continue to push traditional investors outside their comfort zone, forcing them to look for risk-adjusted yield in the EM universe. In general, investors are increasing exposures to emerging markets2 helping EM countries to trade on their own fundamentals.

2 According to EPFR Global, Emerging market bond funds attracted US$3.42bn of inflows in June. 3 ETF Securities Research 2016

Important Information

General

This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).

The information contained in this communication is for your general information only and is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision. Historical performance is not an indication of future performance and any investments may go down in value.

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