Please see the below daily update article from EPIC Investment Partners received this morning 28/11/2024:
Moody’s recently upgraded Saudi Arabia’s rating to Aa3. This was the first such upgrade by the rating agency since it assigned the Kingdom an A1 rating in 2016. This new rating places Saudi Arabia on par with Hong Kong and Belgium and is higher than S&P Global’s A and Fitch’s A+ ratings.
The upgrade reflects the Kingdom’s progress in economic diversification through its Vision 2030 plan. Despite challenges from lower oil prices and regional conflicts, Saudi Arabia is strategically investing to attract foreign investment and restructure its economy. Moody’s anticipates continued growth in the non-hydrocarbon sector, projecting 4-5% expansion in the coming years.
However, the positive rating is tempered by ongoing fiscal challenges. The country faces consecutive quarterly budget deficits and is expected to see its debt-to-GDP ratio rise to 35% by 2030; though hardly eyewatering when compared with some AAA rated Western nations. Moody’s also highlighted potential risks from global economic uncertainties, oil market fluctuations, and regional instability that could impact the Kingdom’s fiscal stability. According to our Net Foreign Asset Model Saudi Arabia ranks as a 6 star nation with net foreign assets above 50% of GDP.
The Saudi Public Investment Fund (PIF) received a corresponding upgrade. Managing nearly USD1tn in assets, the PIF is a key driver of economic diversification. Through its special purpose vehicle, GACI First Investment Company, The Saudi sovereign wealth fund has issued green bonds funding renewable energy, clean transport, and sustainable water management projects. The Aa3, rated 5.125% bond maturing in 2053 looks attractive, with an expected return and yield of just under 19% over 4 notches of credit cushion.
Separately, the 39th annual American Farm Bureau Federation Thanksgiving dinner survey revealed interesting economic trends. The classic meal for 10 now costs $58.08, a 5% decrease from last year. A 16lb Turkey represents around 43% of the total cost and costs 6% less than last year. It is a great example of simple demand/supply economics. Prices should rise, as farmers raised 6% less turkeys this year (205m), the lowest number since 1985, partly due to avian flu. However, overall demand per head fell almost a pound this year contributing to a falling price instead.
While the meal costs 20% more than five years ago, wage increases have offset this rise. A turkey’s price may have doubled since 1986, but the work hours required for a blue-collar worker to purchase it have dropped from 3.2 to 1.9 hours.
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Charlotte Clarke
28/11/2024