Are Saudi investors pulling out of the USA?

On August 20, 2002 the Financial Times (FT) of London, published an editorial titled ‘Handling the House of Saud’ asserting that rising tensions in US-Saudi relations had resulted in a capital outflow of Saudi money invested in the United States.

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By  Massoud Derhally Published  August 28, 2002

On August 20, 2002 the Financial Times (FT) of London, published an editorial titled ‘Handling the House of Saud’ asserting that rising tensions in US-Saudi relations had resulted in a capital outflow of Saudi money invested in the United States.

According to the FT article, which quoted Youssef Ibrahim, a senior fellow at the US based Council on Foreign Relations, Saudi investors withdrew an estimated US $100-$200 billion dollars from the US in recent months. Ibrahim attributed the withdrawal to a lawsuit brought against a number of Saudi institutions and private individuals including three members of ruling Al Saud family. Reports of withdrawals sparked speculation that Saudi investors helped spark the recent slide of the US dollar against the Euro.

No one will disagree that within the last year there has been considerable anti-Saudi sentiment coming from the US and those words have hardened over the last few months. But is the withdrawal of Saudi money fact or mere speculation, and if true, then it would be correct to ask where the evidence is.

At the moment there is no concrete evidence. There are bits and pieces that one can point to as signs of typically jittery investors. But that is arguably all that exists at the moment really, bits and pieces.

“It is exceptionally difficult to make an estimate on the movement of capital like this from anyone particular group,” says a senior European banker in Saudi Arabia. “You can make estimates looking at the movements of general portfolio capital in and out of a country and so on but to try and attribute it to individual investors is difficult. I think that the FT mentioned that this was over a very short space of time and I think it would be very difficult for this amount of money to be moved out of the market especially since the market has fallen so much.”

However, Bisher Bakheet, managing director of Saudi based Bakheet Financial Services believes rumours of the withdrawal may be accurate, but that it is likely to have happened over the last two years. “The US economy was going down, then September 11 came, the bashing of Islam and Arabs and anything with Middle East followed that,” he says.

“People got scared and suddenly you have the US economy flattening because of 9-11, stock markets falling down, you then have the Enron and Andersen fiasco, the boycott of American goods and services, the trade balance with Saudi falling 40% and now its all culminating into this lawsuit against Saudis. Does that mean that about 25-30% of the US-Saudi investment been moved out? Probably yes or maybe even more than that.”

Bakheet believes that most of the money is going into cash, money markets, and deposits, as economies are not performing well, and some may be coming back to the region. “I think most investors have transferred ownership from a US based account to a European based account. Some of it is definitely coming back and the [Arab] stock markets are doing very well vis-à-vis the rest of the world. That tells you there is a lot of liquidity flowing back to the system,” says Bakheet.

However, Said Al Shaikh, chief economist of National Commercial Bank, believes things have been exaggerated. “We don’t have reported, documented data that suggests or explains that it has been that much money. I doubt that US $200 billion was pulled out of the US market, for a simple reason,” says Al Shaikh.

“Most of the investments by Saudis in the US are scattered in different types of assets such as stocks, bonds, real estate and many other activities. To pull at that money, or liquidate all those assets in a short period of time, would be disastrous for those investors because you would be losing and not making a proper timing for selling or liquidating assets,” says Al Shaikh.

Al Shaikh believes it is unlikely that investors coordinated and collectively pulled their money. Investors act on their own, depending on how they find something suited to their investment decisions, says Al Shaikh.

“If they made any decisions on pulling out money, it would be based on main economic conditions. They found out that the US stock market is not giving them the returns they are looking for and act just like any other investor allocating their investment into other regions. How can it be $200 billion, which is 1.4 of the GDP of Saudi Arabia which last year was 180 billion? If the money was pulled out from the US it obviously was not repatriated to Saudi Arabia, because we would have been able to see that through the Saudi banking system. There has been growth in the Saudi banking system but that is attributed to the higher oil prices, oil revenues, and less money flowing out of Saudi Arabia,” Al Shaikh said.

Saudi entrepreneur Prince Alwaleed bin Talal who has a number of holdings in the US was also quick to argue out that speculation of a wide scale withdrawal was inaccurate. "I'm holding onto all of them (my investments) and in all honesty increasing my stakes in certain companies in the US," he said.

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