Saudi Arabia not the only ‘bad boy’ in EMs

17 May 2019

Finisterre chief executive Rafael Biosse Duplan has said investors should not immediately dismiss investing in Saudi Arabia as it not the only ‘bad boy’ in emerging markets.

Saudi Arabian stocks will join the MSCI Emerging Markets index for the first time at the end of May but some believe the country should still be avoided on ESG grounds. The country has hit the news in recent months after issues such as the death of Jamal Khashoggi and its treatment of gay people.

At the time of its inclusion, MSCI said the country had been upgraded from standalone status as it had successfully opened up its market to foreign institutional investors through regulatory and operational enhancements.

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Rafael said, although ESG was a component of their investment process at the EM debt asset manager, he would not make an exception for Saudi Arabia and pointed out the country was going through important reforms.

Rafael said: “We are very aware of the dark side of the country but we don’t want to be hyper-focused on the recent news. Saudi Arabia is not unique in being a ‘bad boy’ in emerging markets. There are other places with a dubious track record such as Venezuela and Russia.

“We take into account a variety of factors which lead us to an investment or divestment decision, of which ESG is a key one. However we cannot overreact to one set of events, however abominable and repulsive they are, in isolation of all others.We endeavour to move from this phase of awareness to a phase of measurement of our investment decisions on an ESG scale, and eventually to a place where we can impact for change. This is a long road but the direction of travel is clear to us.”

Elsewhere, he said the restarted trade talks between the US and China would only have negative economic consequences in the future. After a temporary hiatus China said this month it will raise tariffs of US$60 billion of US goods and the US already implemented them on $200 billion of Chinese imports in May.

Tariffs are a bad idea, they are unfavourable for the US consumer and will put pressure on the Federal Reserve but they are good for Trump’s reputation as he is seen as being tough on China which is a view supported by a lot of the population. So it will be a political victory for Trump but not an economic one.

“It reminds me of the Cold War, the trade climate will continue to deteriorate until there is a rebalancing of power between the two countries and that will have a worldwide impact.”

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