Portfolio Manager, Peter Brooke, shares his latest Macro Perspectives, discussing the Saudi Arabian growth story, as it seeks to unlock R1 trillion of investment and makes progress in the inclusion of women in the economy.
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Peter Brooke 00:00
Good day. My name is Peter Brooke, and I'm a Portfolio Manager at the Old Mutual Investment Group. This is Macro Perspective 5 of 2022, and it's being recorded in Riyadh, Saudi Arabia, where I am on a work trip. And I've had to endure the hardship of having to work on a Sunday and the alcohol ban. The reason I'm here is that Saudi Arabia is one of the big unique growth stories for the next decade. Therefore, as a long-term allocator of capital, we need to understand the opportunity better.
Peter Brooke 00:31
The Saudi story is underpinned by their ambitious Vision 2030 project, which is looking to unlock $1 trillion of investments. The macro backdrop is promising, with a large current account surplus funded by oil, low government debt, and a massive investment fund war chest. The demographics are also positive, with a young population and a low dependency ratio. This has been boosted by social reforms, which have allowed women into the workplace. Female penetration in the workforce has doubled to 36% over the last five years. And this is obvious to see in all of our company meetings.
There's a real buzz around the city and the people seem very happy and positive with the changes. There's also evidence of massive infrastructure projects and building all around the city. And if anything, the constraint is not enough skills to deliver into the aggressive, centrally driven timelines. So, in terms of our philosophy, the theme is clearly positive. Unfortunately, due to strong outperformance last year, the price is high. Hopefully, a cyclical slowdown, driven by very high interest rates, which have followed the Fed, will give an opportunity to buy into this growth story. And we can see evidence of this when speaking to the banks in terms of slowing demand for loans.
Peter Brooke 01:52
Saudi Arabia is also very important geopolitically due to their dominance of the oil market. An important recent development is their interest in joining BRICS, and the recent state visit of Xi Jinping. With the US self-sufficient in oil, Saudi is shifting its oil exports eastwards and is also becoming politically more self-confident. This is really important for all investors as the sale of Saudi oil for US dollars, and then the recycling of those dollars into US treasuries in the form of foreign exchange reserves, all link together with a currency peg, is the foundation of the petro-dollar market.
Now, the Saudis are no longer building for foreign exchange reserves, choosing to invest their oil proceeds in the Vision 2030 projects. This fundamentally reduces the demand for US dollars. We will watch these developments with interest but think that the long-term trend of a strong US dollar is coming to an end. And the Saudi shift adds to this. This will be good for assets in the rest of the world.
I hope you enjoyed this perspective. Until next week.