Introduction of Securities for Investment in Saudi Arabia

The financial markets are basically divided into further two type’s money market and capital market. In the money market short term securities or borrowing are issued to the individuals however in the capital markets long term securities are issued to the investors. The investors usually invest in such type of securities that provide maximum return and have manageable risk. The higher would be the risk the more will be the chance of generating profit. It is important for the investor to analyze the market trend before investing in any type of security because if the investor is not going to analyze the trend then it can suffer from financial loss.

Security Selected for Investment in Saudi Arabia

Franklin FTSE Saudi Arabia ETF and HSBC Saudi Financial Institution Equity Fund have been selected for investment. Two investments were made in the capital market securities which include investment in ETF (Exchange Traded Fund) and investment in mutual fund. Another investment is made in the money market security which includes Treasury bills issued by the Saudi Government.

The reason for investment in Franklin FTSE ETF is that it is the top traded ETF in the market. On the other hand the HSBC Equity Fund is a mutual fund administrated by the Saudi British bank.  The third security in which the organization has decided to invest is the treasury bills issued by the government. The treasury bills have the lowest risk and because T-bills are issued by the government to finance its various projects. Below is the table which is showing the T-bills rates in Saudi Arabia:

December - 2018	2.27106	2.31898	2.50202	2.67366	2.89939
November - 2018	2.24339	2.28046	2.46627	2.63845	2.84667
October - 2018	2.20023	2.23568	2.35799	2.54961	2.75166
September - 2018	2.01371	2.11990	2.26698	2.44424	2.66567
August - 2018	2.00940	2.06969	2.20017	2.37475	2.60567
July - 2018	2.00598	2.05567	2.18421	2.35733	2.58761
June - 2018	1.88646	1.95511	2.12074	2.28619	2.49993
May - 2018	1.75555	1.81382	2.02034	2.15553	2.37379
April - 2018	1.74444	1.76532	1.88681	2.02629	2.17697
March - 2018	1.52339	1.63321	1.73729	1.91421	2.07346
February - 2018	1.27883	1.41742	1.58725	1.76827	1.94888
January - 2018	1.28243	1.34730	1.50881	1.67437	1.84337

 

Issuer of Securities for Investment in Saudi Arabia

The FTSE Fund is issued by the Franklin Templeton Investments. The date of inception of the fund is 9th October 2018. The asset class is equity and size of asset class consist of Multi-Cap. The top holdings of the FLSA contain:

Saudi Basic Industries Corp

Al Rajhi Bank

National Commercial Bank

Samba Financial Group

Saudi Telecom Co.

Riyad Bank

Saudi Arabian Mining Co.

Almarai Co. Ltd.

Alinma Bank

Saudi Arabian Fertilizer Co

Meanwhile HSBC Equity Fund is issued and managed by the Saudi British Bank. The currency in which the investment is made is Saudi Riyal. The category of the investment is Stock. The amount of monthly return is 4.15. The major investment in the HSBC Equity Fund is mentioned as follows:

Samba Financial Group

Arab National Bank

Al Rajhi Bank

Riyad Bank

Banque Saudi Fransi [1].

Finally, the investment is made in the SAMA Bills. The treasury bills have the lowest rate of risk however due to low level of risk the treasury bills provide lower returns.

Value of the Securities for Investment in Saudi Arabia

The HSBC Equity fund offers 14.10 return in six months which means that in 3 years the return would be 29.67 %. The amount of initial subscription is 5000 and amount for additional subscription is round about 2500.

The Treasury bill provides approximately 2.84 % return. The treasury bills have the lowest rate of risk however due to low level of risk the treasury bills provide lower returns [1].

Features of Securities for Investment in Saudi Arabia

Generally, ETFs provide the tax efficiency, low expense ratios, and easy diversification of index funds, while still maintaining ordinary stock’s all the features, such as options, short selling, and limit orders. ETFs can be economically disposed of, held, and acquired, some investors can make ETF shares investment as a long-term investment so that assets could be allocated, while some investors can trade shares of ETF frequently so that market timing investment strategies could be implemented [2].

HSBC Saudi Companies Equity Fund has the ability to achieve capital growth in the long-term by investing in the equity stock market of Saudi Arabia. This is basically a Financial Institutions Fund that can provide investors with reliable and solid platform for investment through investing in the Saudi Arabia’s top financial institutions. The fund can manage its liquidity through Money Market Instruments’ investment [3].

Treasury Bills are issued either in dematerialized form by crediting to SGL (Subsidiary General Ledger) account or physical form as a promissory note. Treasury bills are issued at the discount, however redeemed at par. Treasury bills are instruments that are highly liquid negotiable and available in both primary and secondary financial markets [4].

Reason for Choosing these of Securities for Investment in Saudi Arabia

ETFs are chosen for the investment as it offers various advantages which include:

Cost-effective: its cost is generally lower than other products of investment because most of the ETFs are not managed actively.

Flexibility in buying and selling: ETFs can be sold and bought at prices of current market during the trading day at any time, unlike unit investment and trusts mutual funds, which can be traded at trading day’s end only.

Efficiency of Tax: generally ETFs generate capital gains that are relatively, because its turnover is typically low of their portfolio securities.

Market diversification and exposure: an economical way can be provided by ETFs to to "equitize" cash and rebalance portfolio allocations by quick investment.

Transparency: ETFs, whether actively or managed index funds, are priced at frequent intervals and have transparent portfolios throughout a day of trading.

There are various advantages of HSBC that are the reasons for choosing this security: The HSBC fund has the ability for liquidity management through Money Market Instruments investments. The fund has an inception price of SAR 10 that is well diversified as make investments in the various banks of Saudi Arabia.

There are various advantages of Treasury Bills that are the reasons for choosing this security:

It is considered to have very small or even no risk attached practically. All things being equal, the investor will get the money back for sure with a promised interest.

Treasury Bills are very liquid that can be easily converted in cash.

Treasury Bills do not charge any transaction cost. Unlike other investment’s forms where an investor is charged an amount by broker.