Deutsche Bank upbeat on Saudi prospects

Deutsche Bank has encouraged investors to seek exposure to Saudi Arabia, saying it expects a v-shaped recovery for the largest Arab economy.

“We believe that the current modest market valuation is the reflection of a post-oil price collapse trauma and a consequence of the Algosaibi/Saad debacle, and does not yet reflect the country’s long-term growth prospects,” a team of analysts wrote in a report.

A higher oil price, strong government spending in infrastructure projects and relatively low correlation with other markets are among the factors making the Kingdom an attractive market, Deutsche said.

“In 2010, we expect the Saudi economy to grow by 3.8 percent, well ahead of all the other countries in EMEA except Turkey and Qatar,” the bank said.

Saudi stocks are currently trading at around 11.3 times projected 2010 earnings, compared with an historical average of 17.2.

Saudi Arabia holds more than 20 percent of the word’s proven petroleum reserves the country’s oil dependency is among the highest in the region, with oil accounting for 90 percent of exports and government revenues.

But the bank said private sector growth should be boosted by the government’s continued diversification efforts and structural reforms.

Saudi Arabia has reduced its debt level from over 100 percent of GDP at the end of the nineties to around 13.5 percent.

The country’s young population presents a tremendous challenge, as well as a significant opportunity, Deutsche said.

“King Abdullah is injecting significant resources into the education system in order to make the necessary skilled workforce available and we believe that this will translate into sustainable economic growth for the country,” it said.

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