The opening up of the Saudia Arabian stockmarket to foreign investors on Wednesday marks a landmark event for foreign investors in the Middle East. However, Pictet Targeted Fund (Lux) Middle East North Africa manager Oliver Bell believes that as local investors pour money into the Saudi Arabian market, in anticipation of huge foreign inflows, it is the UAE market which currently offers the greatest value.

On Wednesday the Saudi Arabian Central Monetary authority approved equity swap agreements between non-resident foreign individuals, institutions and 'authorised persons' in Saudi Arabia. The Saudi Arabian market, the largest in the Middle East North Africa (MENA) region with a capitalisation of around $400 billion, was previously one of the most restricted markets in the region for foreign investors.

Increased investment in the country will lead to to the creation of new jobs and more diversification within the economy, according to Bell, who is also Pictet's head of emerging markets specialist equities. 

'The macro case for the market is good, with real unemployment of 20-30% and a demographic younger than India necessitating investment of crude oil receipts into diversifying the Saudi Arabian economy and creating more jobs - breakeven for the budget is around $40 crude,' he says.

Yet Bell believes initial flows 'certainly won't have that much impact, considering the size of the market and lack of investor exposure to it'. Many foreign investors lack the requisite agreements with brokers in order to gain immediate access, he says. For the London-based manager, the immediate opportunities may in fact lie elsewhere in the region.

'While the market contains some interesting stocks we will continue to ferret out further value positions, a possibly more interesting development has been a further hit to the UAE market as locals speculate on huge foreign flows and pull money out of the market to park in Saudi Arabia,' he says.

Bell is finding large stocks in the UAE market particularly attractive, as he points out they are currently trading at single digit price to earnings ratios despite what he describes as 'great earnings growth and two to three years of good visibility'.

'While there are concerns about the Dubai real estate market in particular, we believe the fundamentals remain strong for the next one to two years as supply will continue to come well below demand. Inflation is moderating as the dollar appreciates,' Bell says.