ar File photo, Saudi journalist Jamal Khashoggi. (AP Photo/Hasan Jamali, File) Photo credit: ASSOCIATED PRESS
Has Wall Street no shame? Probably not.
Late last year the world reacted with horror as the Kingdom of Saudi Arabia got implicated in the alleged murder of dissident Saudi journalist Jamal Khashoggi.
But looking at the actions of the finance community you’d think nothing happened.
This year, just a few months after the October killing of Khashoggi, international investors are sinking billions of dollars of cash into Saudi Arabia’s stock market. And the flow of money looks set to balloon further, according to a recent research report.
The killing, which is said to have happened inside a Saudi consulate in Turkey, recently garnered another round of bad publicity after United Nations investigator Agnes Callamard said the killing was the result of deliberate government action. She said: It “constituted an extrajudicial killing for which the State of the Kingdom of Saudi Arabia is responsible,” according to a report in Al Jazzera.
In other words, the journalist’s death wasn’t an accident or the act of an independent actor. But instead, the fault lies with Saudi’s government.
In turn, the results of the UN investigation prompted Kashoggi’s fiance Hatice Cengiz to call for an international inquiry into the matter. So far it isn’t clear whether Saudi’s effective ruler Mohammed bin Salman will feel any heat from the international community.
Investors Inured?
Meanwhile, investors seem inured to the revulsion of what happened to the journalist. So far this year, profit-seeking stock speculators sank $10.8 billion into Saudi Arabia’s stock market, with almost half ($4.5 billion) coming last month, according to a recent report from Washington DC-based non-partisan think tank the Institute of International Finance (IIF.)
What’s more, IIF sees far more money going to Saudi stocks in the future. The “potential allocation from active investors could reach up to $40 billion in years to come,” the report states.
Part of the reason that Saudi Saudi’s stock market looks so too good for investors to miss is that the country is getting included in the MSCI Emerging Markets index, a key benchmark followed by the financial community across the globe. The IIF report provides some more detail:
In the absence of major domestic and external shocks and deterioration in EM investment sentiment, Saudi Arabia can count on additional equity inflows from active investors whose portfolios are benchmarked to the MSCI EM index.
The country has also introduced some economic and financial reforms that make it a better bet for stock buyers.
Emerging markets tend to be less economically advanced than so-called developed markets such as the U.S. and the UK.
Cold on Other Emerging Markets
To put the recent investments into further context, while investors fell in love with Saudi stocks, they couldn’t dump their holdings from other emerging markets fast enough.
In May alone speculators cashed in a total of $14.7 billion of stocks across all emerging markets with half of that coming from China.
“May stands to be the worst performing month for EM equity flows since the taper tantrum,” of June 2013,” the IIF report says.
Or put another way, investors fled emerging markets stocks in the biggest way for more than half a decade and instead got cozy with Saudi Arabia’ stock market.
