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Saudi Arabia: get riyal

You like emerging stock markets, and you like them drenched in hydrocarbon money. So five years ago you invested in Russia's Micex index, and have gained 60 per cent since - not a hugely impressive performance versus the S&P 500's doubling in value.

The Micex remains full up with Siberian mineral riches, given its hefty weighting of Gazprom and Rosneft. But owning the Micex in 2014 gives the uncomfortable feeling that financial globalisation is going into reverse. Sanctions imposed in the US or Europe are getting tighter. The Kremlin's goodwill towards foreigners owning stakes in its strategically important companies may evaporate.

Meanwhile, investing five years ago in another oily equity market would have returned 93 per cent - if Saudi Arabia had allowed direct foreign investment into the Tadawul index at the time, that is.

In Saudi, globalisation is moving forward. The kingdom's cabinet said this week that it will remove this barrier - although exactly when is not clear. The move has been awaited for years. Direct foreign buying beats investing money via swaps and local intermediaries, which preclude shareholder control.

The Micex free float's market capitalisation is at $228bn - despite the presence of Gazprom, which reported almost as much net profit last year ($63bn) as Apple. Even without full access to global equity capital, the Tadawul has reached the same level. The Saudi monarchy is also likely to retain US friendship for rather longer than the Kremlin.

The important difference is valuation. The Micex trades below its book value. It is cheap for a reason. The Tadawul has hit 2.4 times book. The priciness reflects Saudi economic growth of between 4 and 5 per cent, and diversified weighting in telecoms, chemicals and banks. Even so, the public offering of a stake in the largest Saudi bank by assets this year will hardly dampen spirits. Investors who are frozen out of Siberia may end up in the desert. They will pay up to make the trip.

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