Opinion

Saudi Arabia's PIF buying spree is vote of confidence in pandemic recovery

Saudi Arabia's PIF buying spree is vote of confidence in pandemic recovery

Author
Short Url

We should have seen it coming. Yasir Al-Rumayyan, governor of Saudi Arabia’s Public Investment Fund (PIF), told a virtual gathering of investors last month, “You don’t want to waste a crisis. We’re looking into any opportunities.”

Amid the global economic turmoil caused by the coronavirus disease (COVID-19) pandemic, few took him at his word, but at the end of last week proof of the PIF’s ambitions came in a Form 13F declaration from the US Securities and Exchange Commission (SEC), the watchdog of the American investment industry.

The disclosure — required by US authorities of all big investment institutions — showed that the PIF had not wasted any time at all during the crisis. In fact, it had been in hyperactive mode during the first half, when global stock markets had plummeted as economic activity ground to a halt under pandemic lockdowns.

The PIF had spent around $7.7 billion on a shopping spree of US assets, many of them in sectors deemed especially vulnerable to the forecast downturn such as travel, hospitality, and entertainment, as well as in energy and financial services.

The disclosure repays a bit of scrutiny. Note first, that although there are some investment businesses outside the US — Canadian Natural Resources and Suncor Energy of Canada, along with Europe’s Royal Dutch Shell, Total and BP — all are in US-quoted securities, for example American depository receipts (ADRs).

Another point is that the document is a snapshot, rather than a timeline. It does not identify exactly when the PIF bought the shares, only what their value was at the end of March. So, it is not possible to tell precisely what price the Kingdom’s wealth fund paid for the assets.

But it is reasonable to assume most of them were purchased in the first few weeks of March, when US markets fell by around 30 percent before the federal authorities intervened to stabilize financial markets with the first of their “bazooka” interventions.

These had the desired effect as stocks rebounded from the end of March, winning back more than half of their earlier losses. It is entirely possible that the PIF is already in the money on some of the investments.

The PIF picks fall into five broad categories. Bank of America and Citigroup are two leading financial institutions and seen as financial “blue chips” that already have corporate and investment banking relationships with the Kingdom. They are safe long-term bets, but the shares could be vulnerable to any further downturn in financial markets.

The PIF buying spree helps shift its portfolio away from a concentration on Saudi Arabia and its big projects.

Frank Kane

Leisure and travel were hit hard by social distancing measures and air travel restrictions. Marriott International, Booking Holdings and Carnival Cruises obviously face challenges until the new normal of global travel becomes apparent, but could be seen as immediate beneficiaries from a recovery.

The same applies to entertainment — in the form of Disney Corp. and Live Nation — although they could take longer to get back to pre-pandemic levels because of ongoing social distancing and understandable fears about close-proximity events.

The PIF went big in technology, with stakes in Automatic Data Processing, IBM, Qualcomm, and Broadcom. Technology is one of the sectors generally seen as a long-term winner from the health crisis.

Boeing, another big PIF investment, was already suffering because of the 737 Max problems, which have been compounded by increased uncertainty over new aircraft orders. The corporation is well known in the Kingdom through other defense and technology business.

The energy investments, especially in independent oil companies, sparked some skepticism. The purpose of the PIF after all is to diversify the Kingdom’s economy away from oil dependency. But it is a sector Saudi Arabia obviously knows very well and could bring the PIF some influence in future global energy policy, as well as capital upside when oil prices improve.

The small investment in Berkshire Hathaway — the vehicle of Warren Buffet — was seen as a riposte to the legendary investor who has been among the gloomier voices in the crisis. But the PIF could also do worse than backing the “sage of Omaha.”

The PIF buying spree helps shift its portfolio away from a concentration on Saudi Arabia and its big projects. Long-term international investment, in sectors that will make money for the Kingdom and assist its own diversification ambitions, is a core part of the PIF strategy.

But most of all, the $7.7 billion bargain hunt is a big vote of confidence that economic and financial recovery will be rapid and resilient. The coming months will show how good a call that is.

• Frank Kane is an award-winning business journalist based in Dubai. Twitter: @frankkanedubai

Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News' point-of-view

Saudi Arabia buys $7.7 billion shares in world’s best known companies

1 / 2
Boeing is the among the global corporate leaders that Saudi Arabia's Public Investment Fund has included as it goes bargain hunting during the current coronavirus pandemic. (AFP)
2 / 2
Facebook is the among the global corporate leaders that Saudi Arabia's Public Investment Fund has included as it goes bargain hunting during the current coronavirus pandemic. (Reuters)
Short Url
Updated 19 May 2020

Saudi Arabia buys $7.7 billion shares in world’s best known companies

  • Bargain-hunting wealth fund invests in Boeing, Facebook, Disney, Starbucks and more

DUBAI: Saudi Arabia’s sovereign wealth fund has gone bargain hunting during the current economic turmoil, snapping up about $7.7 billion worth of shares in some of the best known companies in the world.

The $300 billion Public Investment Fund bought stakes in global corporate leaders such as Boeing, Facebook, Disney, Marriott and Starbucks. It also invested in two big US banks, Citigroup and Bank of America, and took holdings in oil giants BP, Total and Royal Dutch Shell.

Stock market experts said the buying spree reflected confidence on the part of the PIF that companies badly affected by the economic fallout from the COVID-19 pandemic would recover quickly, and their share prices would rise.

“The PIF seems to have taken a view on prices from a long-term perspective. We must assume they bought when they were down on the assumption they’ll go back up,” Tarek Fadlallah, chief executive of Nomura Asset Management in the Middle East, told Arab News.

Explaining its investment rationale, the PIF described itself as “a patient investor with a long-term horizon. As such, we actively seek strategic opportunities both in Saudi Arabia and globally that have strong potential to generate significant long-term returns while further benefiting the people of Saudi Arabia and driving the country’s economic growth.”

FASTFACTS

  • The buying spree reflects confidence on the part of the PIF that companies badly hit by the pandemic would recover quickly, say experts.
  • US stocks lost about 30 per cent of their value in the crash after the global lockdowns began, but have since recovered about half of that decline.

A declaration to the US stock market regulator showed PIF having positions worth about $10 billion in 24 companies. The biggest, worth just over $2 billion, was an already declared holding in taxi app Uber.

The next biggest was an investment in BP,  nearly 34 million shares valued at $827 million, followed by the Boeing stake for $713 million. Facebook and Citigroup stakes were valued at about $521 million each.

The new PIF portfolio has a strong bias toward travel, entertainment and hospitality, with shareholdings in the Marriott hotel chain, the online travel company Booking.com and events promoter Live Nation.

Opinion

This section contains relevant reference points, placed in (Opinion field)

There is also interest in technology with investments in Cisco, Qualcomm and Broadcom, and in pharmaceuticals via a stake in Pfizer.

One notable smaller purchase was in Berkshire Hathaway, the vehicle of legendary investor Warren Buffet, who recently sold big stakes on a pessimistic view of future valuations. One Saudi banker said: “That’s a cheeky way of PIF telling Buffet that they are more optimistic than him.”

US stocks lost about 30 per cent of their value in the crash after the global lockdowns began, but have since recovered about half of that decline after large-scale fiscal intervention by the federal authorities.

Related


Saudi economy can withstand pandemic: Finance minister

Updated 25 May 2020

Saudi economy can withstand pandemic: Finance minister

  • Mohammed Al-Jadaan thanks Saudi leadership for urgent decisions taken to deal with the coronavirus crisis

JEDDAH: The Saudi economy can withstand the coronavirus crisis despite the need to cut spending, Finance Minister Mohammed Al-Jadaan said on Saturday. 

“The Saudi economy is able to absorb the decline in revenues and to deal with the budget deficit,” he said, adding that the government “firmly addressed this crisis with all determination, while prioritizing the safety and health of its citizens and residents.”

Al-Jadaan said the government “also worked hard to provide people with their basic needs, secure the necessary resources for health care systems, financially and economically support those most affected by the pandemic, and re-prioritize spending under the current circumstances.”

He thanked the Saudi leadership for “its unlimited support, and for the urgent decisions taken by the government to deal with the coronavirus crisis, including the initiatives it had launched to protect the Kingdom’s economy and support the private sector, its enterprises, low-income individuals and investors.”

The Kingdom “also showed a great sense of responsibility and commitment by holding the extraordinary G20 Summit in the framework of its presidency of the group, and recommending an injection of $7 trillion into the global economy as part of the financial policies, economic measures and security schemes aimed at facing the social, economic and financial repercussions of the pandemic,” he said.

“Saudi Arabia called for the bridging of the funding gap, estimated at $8 billion, to discover and develop new diagnostic tools, treatments and vaccines, while also providing $500 million of the required amount.”

Al-Jadaan congratulated the Saudi leadership on the occasion of Eid, and asked God to bless the Kingdom, protect it from the pandemic, and maintain its security and stability.