JEDDAH, 13 June 2005 — Mutual funds which are presently growing by only two percent in the Kingdom have a huge potential for growth here, according to Mohamad H. Al-Sewilem, head of marketing for investment services at the National Commercial Bank (NCB). He said that the rate was definitely set to increase as more educational programs and awareness campaigns are organized by the Saudi Arabian Monetary Agency (SAMA) and the newly established Capital Market Authority (CMA) with the cooperation of Saudi banks. “Local investors are in need of advice and they are starting to view mutual funds as an investment tool for all market conditions,” he said.

However, the Kingdom’s mutual funds market has been growing considerably in the last couple of years especially with the massive Saudi budget surplus in 2004-2005 and the availability of ample liquidity in the market. Although the mutual funds as a percentage of the gross domestic product (GDP) and bank deposits are still relatively low, recent research has shown positive indications for more growth for mutual funds.

Al-Sewilem told Arab News, “NCB remains the leader of the mutual fund industry with 41 percent of local market share as of December 2004. One of our most successful funds is the Shariah-compliant AlAhli Saudi Trading Equity Fund with 780.8 percent in returns since its launch in 1998. The fund is currently considered the biggest in its category with assets of SR8 billion up to now.”

Out of a total of 195 investment funds in the Kingdom the NCB has 29 whose net asset value (NAV) exceeds SR28 billion. NCB which offers 29 mutual funds including income funds or ‘money market’ funds, balanced funds, the sector funds, the equity funds and the closed-ended funds was the first bank in the Kingdom to introduce Shariah-compliant funds in 1987 and currently 25 of these are approved by the Islamic Shariah Control Committee.

Al-Sewilem said, “Saudi investors are very keen on Shariah-compliant products and this is also applied to the mutual funds offering. According to our latest studies, almost 90 percent of investors, when asked, said that it is very important for them to invest in Shariah-compliant products. They are prepared to compromise on the return rate or the quality of service, but not on the Shariah compliance.” He also said that NCB is planning to launch four new funds by the end of this year and all will be Shariah-compliant. NCB, which is celebrating the 26th anniversary of mutual funds, was the first Saudi bank to introduce mutual funds in the Kingdom in 1979.

“Banks in Saudi Arabia have 19 local equity funds including 2 of NCB whose assets have gone up 230 percent to SR42 billion this year from SR12.4 billion last year,” Al-Sewilem said.

Most of the mutual funds offered by Saudi banks have the same range. However, NCB covers a variety of types of funds that invest in the local market and offer a different range of mutual funds that suit every investment portfolio in the Kingdom. “Since 1995 NCB has launched five local funds, AlAhli Installments Fund, AlAhli Durat AlArus Real Estate Fund, Alahli Real Estate Income, AlAhli Auto Finance Fund ‘A’, AlAhli Real Estate Development Fund, AlAhli Auto Finance Fund ‘B’. NCB also launched the Islamic Equity Builders Certificate with the cooperation of Deutsche Bank,” he said.

When asked if mutual funds would be affected when expats are allowed to invest directly in the stock market, contrary to the present when they can only invest in mutual funds, Al-Sewilem said, “Quite the opposite. There will be more investors in the market who understand the risk factor and who will seek advice on investment tools and therefore more investment in mutual funds.” In fact, he said, it is a good time for expats to invest in the Saudi equity market through mutual funds as there will be more returns in diversified portfolios managed by professional advisers.

When asked about where the Saudi stock market is going, Al-Sewilem said that though the Tadawul All-Share Index (TASI) crossed the 13,000-point mark last week, it is very difficult to predict the future trend of the market as it depends on oil prices, company results and available liquidity. TASI is currently 58.3 percent higher than at the start of the year.

He added that the most important factors for a growing market are regulation, transparency and protection of investors from unfair practices. “The new Capital Markets Law shows promise for the Kingdom’s banking and financial markets. The Capital Market Authority has been charged with regulating the market which will definitely benefit the local capital markets greatly,” he pointed out. SAMA currently monitors the mutual funds offered in the Saudi market and offers licenses for banks to launch new funds.

Al-Sewilem said, “As the regulation process by the CMA is complete, more specialized investment institutions will be available in the market and brokerage houses will act as buyers and sellers on behalf of investors which will definitely have a positive impact.”