Invest a small amount in Saudi Arabia
Saudi Arabia is known for its massive oil industry, with approximately 266.5 billion barrels of oil reserves, it also produces nearly 11 million barrels of oil per day, which is 11% of the total global production. But this does not mean that investors cannot benefit from the rest of the other industries that this rich country includes. Here is a look at Saudi Arabia’s economy and major stock market, and some options for investing a small amount in Saudi Arabia.
Tadawul: The Saudi Stock Exchange
Tadawul is the only stock exchange in the country, which is supervised by the Capital Market Authority. With approximately 199 companies listed, the stock exchange is heavily skewed towards the financial services and energy industries but includes many other sectors. Overall, the index provides investors with comprehensive exposure to the country’s economy.
The primary gauge of the Tadawul market is the Tadawul All Stock Index (TASI), which is similar to the S&P 500 in the United States. Since it began in 1994 at 1,282.87, the index rose to more than 11,000 before dropping to around 7,000 by 2012. In 2021, the index has climbed steadily above 11,000.
Saudi Aramco and the Economy of Saudi Arabia
The largest Saudi company is the oil company known as Saudi Aramco which is valued at around $1.74 trillion, making it the most valuable company in the world. Aramco is owned by the state, so it is not accessible to investors.
Despite the dominance of the oil industry, the Saudi government is actively trying to diversify its economy and boost growth through privatization. It is privatizing industries such as electricity and telecommunications, and is designing new “economic cities” to encourage new developments outside the energy industry.
In May 2012, the country announced that it would aggressively enter the alternative energy industry. The government hopes to create up to 15,000 jobs over the next decade by focusing on solar energy.
Saudi Arabia aims to generate 50% of its energy from renewable energy sources by 2030 and to plant 10 billion trees in the coming decades, and the Saudi Green Initiative aims to transform one of the world’s largest oil producers into a “global leader in building a greener world.”
Pros and cons of investing in Saudi Arabia
Saudi Arabia is a very attractive investment destination when energy prices are rising. However, there are some investors who question the sustainability of the country’s economy, given its dependence on a limited resource such as crude oil. But now we can only see whether the government’s attempt to diversify its economy will succeed or not.
The advantages of investing in Saudi Arabia include:
Lots of capital to spend: Saudi Arabia regularly runs strong account surpluses thanks to its large revenues from crude oil, giving the government plenty of money to spend on economic development programs to stimulate the economy.
Privatization: The government of Saudi Arabia has taken measures to privatize some industries, such as electricity and communications, in order to open its markets to more foreign investment.
The risks of investing in Saudi Arabia include:
Dependence on crude oil: Saudi Arabia derives the vast majority of its revenues from crude oil and other forms of energy, which means that any decline in crude oil prices could have significant negative effects on the country.
Investment in Saudi Arabia
You can invest in Saudi Arabia through exchange-traded funds (ETFs) that are traded on US stock exchanges, which include:
- Franklin FTSE Saudi Arabia ETF (FLSA)
- iShares MSCI Saudi Arabia ETF (KSA)
- Market Vectors Saudi Arabia ETF
- Market Vectors Saudi Arabia Small-Cap ETF
Ways to invest a small amount in Saudi Arabia
You do not need to wait until your account reaches hundreds or even thousands of dollars before opening an investment account, but you can invest a very small amount in Saudi Arabia. Here’s how.
Direct stock purchase plans
If investing in individual companies is your goal, consider Direct Purchase Plans, or “DPPs” for short. As the name suggests, you buy these shares directly from the company issuing them, without the need for a brokerage account broker.
Not all companies offer a DPP, so your choice may be somewhat limited. In addition, you should take the time to visit the company’s website and research the investor relations section to determine whether or not they offer a direct buying plan and how to get started.
The real benefits of DPP are that you are not required to pay a huge commission to a broker, and you are given the ability to buy parts of the shares. Let’s say the company you want to invest in is trading at $100 per share for example, but you only have $50 available. With a DPP, you buy only half of a share, and then continue to use small amounts of money to buy more shares over time.
Online brokers and investment applications
The second way to invest a small amount in Saudi Arabia is to register with an online discount broker. Many online brokers offer commission-free trading in ETFs, and you can create an automatic investment plan that will help you start building your portfolio over time. Keep in mind that they may impose some account restrictions and fees, but overall it is a great way to start investing without a lot of money.
Another option is to use one of the very popular investing apps currently in the market, which will help you build a diversified portfolio with the funds you have on hand with a simple tap on your iPhone or iPad. Like online brokers, investment apps can charge service and maintenance fees. If you are looking for an investment app to start with, here are some of the names you can check out:
These apps also have different starting minimums. For some, the minimum is $0, but others may require you to start investing with $100 or more, so choose the app that best suits your budget and investment capacity.
Invest in ETFs
Unlike mutual funds that may charge a minimum initial investment, you can invest in ETFs just as you would invest in stocks. They have a set share price and can be purchased through almost any broker.
ETFs have their own drawbacks. First, you will be required to purchase whole shares. Secondly, you will pay a trading commission every time you make a trade. Since commissions can range from $4.50 to $11, they can quickly eat up your investment. If you buy ETFs less frequently and with slightly larger amounts of money, you can keep your transaction costs lower.
Fund companies that offer low minimums
Vanguard is one of the largest and most popular financing companies, but you need a minimum investment of $3,000. It can take many people nearly a year to save this amount, which makes it not suitable for you if you are looking for ways to invest a small amount in Saudi Arabia.
Fortunately, there are some other fund companies that cater to new investors and don’t impose such high limits. You can check out Charles Schwab, which offers a $100 minimum, and T. Rowe Price, which charges no minimum investor class funds if you open an account with the company. These are two large families of low-cost funds that make it easier for the new investor to invest even with a small amount of money.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.