The Listing of Saudi Aramco: Messages Beyond Emerging Markets

The Sentiment Analysis of News is a bigger game changer in countries from where the information flow is irregular and the ones which are not understood well by global investors. In this context, it is good to take a look at one of the most important capital markets events in Oil economies of the world. It has been more than a month since the most profitable company of the world got listed and though the share price performance has largely been lacklustre so far and to be honest, it doesn’t look very likely that investor interest will meaningfully improve in near term, there are important takeaways from what the Initial Public Offering of Saudi Aramco means for the region and for the local and Emerging Markets (EM) financial markets in general.

There are of course many more people who believe that Oil belongs to the past than the ones holding the view that it is still the future. Nevertheless, it would be too early to write fossil fuels off. Despite the negative publicity they attract, the global energy markets are still dominated by Oil and Natural Gas. And that is something which is a reality we can’t wish away. This is a time to pause and reflect for global fund managers. Saudi Arabia is the most important oil producer and exporter for the world and if this country is looking beyond oil, it clearly means that the most important takeaway is that the countries with abundant natural resources will need to ask themselves tough questions after a certain point.

Not just Saudi Arabia but other GCC countries (Gulf Cooperation Council or GCC is the political and economic alliance of six Middle Eastern countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman) will have to diversify and reduce dependence on oil for their local economy. As newer alternatives of oil emerge, these ‘welfare, zero tax economies’ will need to find other sources of income to fund the bridge and sustain this decades old model for their society and economy.

The other important message is that despite all the surrounding political controversies such as extrajudicial brutal killing of Jamal Ahmad Khashoggi (Saudi Arabian dissident and the controversial columnist for The Washington Post) and allegations of role played by Saudi Crown Prince Mohammad Bin Salman Al Saud (MbS) in the controversy of extra marital affair of Jeff Bezos (Amazon’s Boss and the richest person on the earth, read ‘one of the richest’ for purists) through a WhatsApp leak, the Oil economies want to convey the message that they are open for business. In the eyes of the external world, they may have been inward looking countries for the better part of the last century and there is still a long way to go before they are considered mainstream (despite their rich status and high per capita incomes), the incremental change suggests that they want to increase interaction with the outside world.

This has important implications for the financial markets of Middle Eastern countries and also for Sentiment Analysis based investment decisions in the Emerging Markets, a) there would be more opportunities for investment by foreign institutions in these geographies in the coming decade, b) these economies will remain dependent on crude oil in the foreseeable future but this dependence will decline, c) the ‘perception’ vs. ‘reality’ gap is vast in these economies and in general, this applies to several other Emerging Markets which means that the inefficiencies will consistently and continuously throw up interesting opportunities for investors, d) the role of News flow analysis and the assessment of Market Sentiment will be critical tool for the same reason for investors.

Market inefficiencies and resulting investment opportunities will remain till the time financial markets exist and hence, an efficient and timely analysis of news and prevailing market sentiment could be the difference between gains and losses. With increasingly more powerful tools available for news collection and cheap and efficient computing power available for this sentiment analysis, this will be more and more visible in the markets. That is the only way forward.

Research Team
EM Alpha LLC

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About EMAlpha:

EMAlpha, a data analytics and investment management firm focused on making Emerging Markets (EMs) accessible to global investors and unlocking EM investing using machines. EMAlpha’s focus is on Unstructured Data as the EMs are particularly susceptible to swings in news flow driven investor sentiment. We use thoroughly researched machine learning tools to track evolving sentiment specifically towards EMs and EMAlpha pays special attention to the timely measurement of news sentiment for investors as these markets can be finicky and sentiment can be capricious.Our team members have deep expertise in research and trading in multiple Emerging Markets and EMAlpha’s collaborative approach to combining machine learning tools with a fundamental approach help us understand these markets better.

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