Well folks, it looks like there’s been a new development in the Middle East — in Saudi Arabia to be more specific. It was recently announced that on June 15, foreigners will be allowed to buy stocks on the Saudi Arabian stock exchange.
Commentators are under the impression that this move has been eagerly awaited by American investors, though I can’t say I know who they’re talking about. That being said, this certainly does open up a lot of potential overseas for foreign investors.
But the question remains, should you invest in the Saudi Arabian market when it goes public to foreign traders? And if so, how much should you invest?
I recently discussed this with my panel of experts on my Fox Business show, Making Money with Charles Payne.
There are definitely some hot foreign markets out there, and Saudi Arabia is one of them. As American investors, the one thing we really have on our side here is the strong dollar. We can take our money overseas, invest in a few companies and let our money appreciate.
But is it worth the risk? I asked my panel of experts, and here’s what they had to say.
Investing in Saudi Arabia
According to Plimsoll Market Managing Director Jim Awad, experts have made the argument that many Middle Eastern companies have not made much of an effort to diversify away from oil. Instead, they’re taking the money they make from the oil industry and exporting it elsewhere in the world. So why would we as American investors want to take our own capital and put it to work in those countries? To me, that sounds a little bit like an exit strategy for them.
GOP consultant Cheri Jacobus pointed out that all of the geopolitical issues taking place overseas may have a psychological impact on investors that would scare them away from wanting to invest in Saudi Arabia, even if there is the potential for great rewards. I agree with Cheri that some people might be scared. However, there have been situations in the past where conventional wisdom says to stay away from such markets, even as some investors go on to make a fortune.
Penn Financial President Matt McCall, on the other hand, actually made a recommendation. He said that there is certainly long-term potential here, so if an investor wants to put money in the Saudi Arabian market, they should do so by putting about 5% of their portfolio into an exchange-traded fund that follows the foreign market. He doesn’t recommend going directly to the exchange.
Here’s my take: I’ve been to Dubai and Abu-Dhabi, and from my experience it does appear that the country is trying to diversify away from the oil industry — especially since they know they only have another 10-15 year of oil production left. While they’ve certainly been smart about it, the issue I keep running into is that it’s still the Middle East.
In the past, I’ve had a hard enough time trying to convince people to invest in companies they already know and like, such as Cracker Barrel Old country Store, Inc. (NASDAQ:CBRL) for example. And I have a feeling it will be even tougher trying to convince them to invest in companies they know nothing about overseas.
We’ll find out more on June 15.
