Investors look to Saudi

Falcom Financial Services, a Shariah complaint Saudi investment bank, took the lead in providing clients within the Kingdom a flavour of the first ETF, the Falcom F30 thus opening the gateway to international investors who were not very happy with the SWAP route provided earlier. ETFs (exchange traded funds) are new to the region with only two listed thus far. Falcom has been working closely with the regulator and capital market authorities for the last two years to engineer the environment that supports the introduction of a sophisticated investment vehicle such as an ETF.
 
What are the challenges for the investment banks in general? And how is Falcom coping with it ?
We are all familiar with the crisis that scorched the financial services landscape globally but Greece has given the entire world another aftershock. Investors remain cautious amid weaker global stocks and oil prices. There is too much global uncertainty at the moment for the regional markets to sustain and build on gains. Germany’s decision to ban short selling in certain financial instruments sent the euro plunging to a four-year low against the dollar, and sparked an equities selloff, on fears that the euro-zone’s fiscal and debt crisis will be difficult to contain.

But then, I believe the best steel is made when the iron is hot! Everyone felt the heat to some degree. We saw the near meltdown of the markets once again few weeks ago, the blame game is over and now some serious regulations are being put in place, the hedge fund industry is coming under close scrutiny and the move the EU has taken is in the right direction the fees to get the passport may be a bit too high and the strict compliance with the regulations and declarations of bonuses will maybe make some of them take flight to safe havens but then this was awaited by all.

This will make the industry stronger and more resilient. Closer home, the Kingdom of Saudi Arabia proved to be more resistant than others as it is built on the solid foundation of oil. The Middle East alone produces 11 percent of the world’s petrochemicals. It is expected that this ratio will rise to be 16 percent in 2015. It is using its financial reserves to develop its infrastructure and manufacturing bases. As a Shariah complaint investment bank our business lines of corporate finance, brokerage and asset management have all delivered top class performance. We now have nearly 50 percent share of the on-line brokerage market amongst our peers. We have diversified our private equity portfolio with acquisitions in Greenfield business areas like insurance, real estate and installments. For us it was not about managing crisis or recovery, we were focused on our clients. We remained clear that we had to innovate and at the same time stay true our core of providing clients with a ring of secure investment strategies.  Some time ago, we collectively decided to create our own future and not to get carried away by the events around us, it is true that opportunities come dressed in challenges. The recent decline in crude prices amid the public debt problems in Europe hasn’t become a major concern for Saudi Arabia. Saudi Arabia has awarded 652 contracts worth SAR40bn for infrastructure projects in the first four months of 2010. As the Saudi economy diversifies away from oil, new opportunities will become available for private-sector players beyond the country’s traditional investment driver. Saudi Arabia’s latest budget, with projected spending of SAR540bn, is its largest ever, and has a project pipeline worth more than $692bn widely distributed across construction, petrochemical, oil and gas, infrastructure and power projects.

What are the changes taking place that will affect your bank in the future? Please give us a perspective?
The ETF launch itself is a big push. International investors are serious and we are already seeing them making their moves directly in to the secondary market. Today there are over 3000 ETFs and it has grown to become a trillion dollar industry. The country’s vision of becoming competitive in all sectors of the economy can only be realised by a open capital market that facilitates local and international investors.

At home we are experiencing an evolution with positive moves by the capital market authorities in spearheading the liberalisation process. Their efforts need to be lauded. We have also seeing stricter controls and implementation of listing regulations. Better transparency in disclosure of information to investors is being enforced.  The stock market today is providing more information on core investors and their holdings.  These are all moves in the right direction. Among the seven GCC markets, our country accounts for half of the total market capitalisation. With such a sizeable domestic market, a visionary budget, and a vibrant young population we are confident that our country can easily support the corporate growth that it has embarked upon. Saudi companies also enjoy a competitive advantage of subsidised power, comparatively lower inflation and better infrastructure. Based on the strong economic fundamentals, sound government policies, macroeconomic factors we are confident that we are well positioned for the future.
 
What are your plans to ensure that your early leadership is strengthened?
Innovation will be the key. With the ETF we had to invent as well as invest in a whole new risk management tool, as classical models fell short as derivatives and other hedging instruments are not allowed under the Shariah law neither is shorting allowed. This template was invented in our kitchen so to speak as innovation is embedded as a core value within the organisation. We laid the foundations and the financial capability that provide our clients with the very best here in the local market. We also innovated with our services by providing our clients with six delivery channels to trade. On the investor empowerment front, our information portal falcomwatch.com went through a comprehensive upgrade and this enhanced the site traffic. We are in the forefront of index development, with first licensed index by the Saudi stock market. Now you can see our investment empowerment and decision making technologies helping our clients in the region as we provide the platforms for Oman. ETF WATCH is also serving our client’s needs to check the INAV instantaneously. Today, we are fully equipped to meet the growing needs of our clients both locally and internationally. Our GCC footprint is expanding with an office in Oman. In order to be ready for the emerging opportunities, it is important for us to stay ahead of the race, with ideas that perform and a brand that is respected by our clients. We must respond to the changing times with innovation and constantly look for ideas that deliver value.

Profile
Falcom is a Shariah compliant investment bank that promises intelligent investment ideas. The bank is designed to deliver upscale investment banking and wealth management solutions. The bank has its corporate office based in Riyadh. It has eight investment centers in the Kingdom. The bank has its first international office in Oman. Falcom’s regional footprint will be complete in the immediate future to take advantage of the common currency emerging capital markets and cross border deal flows. As a pure play investment bank, the business lines are corporate finance, brokerage and asset management. The local brokerage business commands over 45 percent of the new player’s market share. Falcom’s local equity fund is the one of the best performing fund since its inception. The bank is equipped with a full fledged treasury operation and has the biggest team buy and sell side research in the Kingdom. Technology played a crucial role in building the brand’s touch point experience. Falcom premises are all designed to seamlessly deliver bespoke service to top tier clients.

Falcom Financial Services won 15 international awards during the course of two years. Global Finance magazine named Falcom the Best New Investment Bank globally for 2008 & the Best Islamic Investment Bank for 2009 and 2010. Falcom is a leader in investor empowerment in terms of knowledge, products and services-it also has the first Shariah index licensed by the stock market regulator.