Saudi Arabia, the biggest Arab economy, is expected to see a 35 per cent rise in non-resident capital inflows into the country this year, as economic momentum gathers pace and international portfolio managers flock to invest in the kingdom’s equities market. A record $50 billion (Dh183.5bn) of non-resident capital inflows are predicted to come to the country on the back of a projected sharp increase in portfolio investments, the International Institute of Finance (IIF) said on Tuesday. The kingdom is among the top countries in terms of inflows within the Middle East, North Africa and Pakistan (Menap) region this year. Menap as a whole is expected to receive total non-resident inflows of $217bn this year, a marginal year-on-year rise, which equates to about 7 per cent of the region’s combined gross domestic product, said the IIF, a global association or trade group of financial institutions. Within Saudi Arabia, Opec’s top oil producer, resident capital outflows will continue to exceed non-resident inflows in 2019 despite the modest narrowing of the current account surplus due to lower oil prices. “Equity inflows are expected to make a significant contribution to portfolio flows,” the IIF said in the report. Garbis Iradian, chief economist at the IIF, said: “We see modest pick-up in non-oil real GDP growth to 3.3 per cent in 2019, supported by continued fiscal stimulus and gradual recovery in private sector growth.” Saudi Arabia’s stock market the Tadawul, the biggest Arab bourse, was admitted into the FTSE emerging market gauge earlier this month in a five-phase inclusion process. Stocks in the kingdom will also be added to the MSCI Emerging Market Index in May, as the eighth-largest constituent of the measure, accounting for 2.6 per cent of its weight. “These inclusions should boost confidence among investors and attract higher equity inflows, which we conservatively project to be $12bn,” Mr Iradian noted. “But prepositioning by investors has been relatively slow due to concerns about policy uncertainty [and] high valuations for Saudi-listed firms.” Non-resident inflows of capital are also expected to remain strong in the UAE while they are expected to decline in Egypt, the most populous Arab nation, due to lower refinancing needs, the IIF said. “We expect growth to remain around 3 per cent in 2019 and 2020 [in the UAE]. Public sector activity may pick up, supported by the $13.6bn stimulus package introduced in June 2018 for a period of three years,” Mr Iradian said. “The UAE’s external position remains in an enviable position. With lower oil exports, we expect the current account surplus to narrow to a still-sizeable $23bn in 2019, equivalent to 6 per cent of GDP.” With public foreign assets continuing to increase to 200 per cent of the GDP by 2020, the UAE will remain the main regional destination of FDI inflows at $10.4bn in 2018, accounting for 20 per cent of the Menap total, the IIF said.
