What the Killing of Khashoggi’s Could Mean for the Markets

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The Khashoggi killing has been at the front of media for the past several weeks. Information about the missing Journalist Jamal Khashoggi is sparse and recently Saudi officials confirmed the journalist was killed, but many questions are left unanswered. Confidence in the Crown Prince has wavered, as many observers believe it would be impossible for him to not have knowledge over the events that unfolded. The attention drawn to the Saudi Kingdom is not positive and has left potential investors with anxiety.

The annual investor’s conference held in Riyadh was clouded in the aftermath of the Khashoggi incident. Despite the Saudi Kingdom touting investments committed where approximately $50 billion, many experts question how much funding will actually flow in from the foreign institutions. Saudi Arabia’s plan to diversify its economy away from oil wealth could face headwinds after recent events. Many European countries look to penalize the Saudi Kingdom for its actions, but cannot hind the fact that the emerging market landscape in the country is ripe with growth opportunities. One relationship, UK-Saudi Arabian, is viewed as a diplomatic for security and economic necessity. UK hopes to secure deals in green energy, health, education and infrastructure.

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The Crown Prince Mohammed bin Salman’s planned smart city Neom, may be at risk as investors face public pressure and concerns about Saudi improvement. It is not all gloom, one source of foreign money is almost sure to keep flowing into Saudi Arabia: investment fund money, including the savings of individual investors in mutual funds and retirement plans. One the only global stock markets to generate significant retunes for 2018 year to date, Saudi Arabia has secured its foot hold in the largest of iShares ETFs (EEM and VWO). Copley Fund Research stated, “Ownership of Saudi stocks by the actively managed emerging market fund universe his firm tracks will continue to rise, and the current buying is just the start.” The largest holdings of these ETF’s happen to be the biggest public companies within Saudi Arabia, these are the oldest and foundational industries such as chemicals, telecom and materials.

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The steps Saudi Arabia takes in the investigation of the Khashoggi killing could very well affect how quickly we see their country grow. With political and geographical uncertainties potential investments could be harder to come by. There are large investment opportunities in Saudi Arabia and their decisions will decide how prosperous they will become.

The Oil market may see additional volatility in the coming weeks, but most analysists would agree it won’t be driven by the Khashoggi killing. Supply and demand are the key drivers in the oil market and most investors will be watching how the U.S. handles the sanctions it plans to raise against Iran. With an implementation target date of Nov. 5th, the US is attempting to cripple Iran’s oil-dependent economy and force Tehran, suppress its nuclear ambitions, quell the ballistic missile program and limit their influence in Syria. Saudi Arabia had threaten to restrict oil production and raise prices per barrel if the US tried to impose sanctions on the Saudi Kingdom due to the killing, but these have simply words thrown back and forth between the Trump and Saudi crown prince Mohammed bin Salman

As sanctions take affect against Iran, the market will be watching to see how many barrels they will be able to produce, their exports today are around 1.5 million barrels per day (bpd), which is below their full output. Organization of the Petroleum Exporting Countries (OPEC) will attempt to compensate for the reduced output. The pending sanctions are believed to have already been priced into the current oil market, and further impact may be limited.

The precious metals market has seen little influence from the events unfolding from the Khashoggi incident. Turkey who is responsible for leading the investigation, has seen a push in golf futures after the lira’s plunge boosted the local price of metal. The important factors here for the effect of gold are going to be driven more by the emerging market landscape which is more diverse the Saudi Kingdom. As the dollar valuation continues to rise, we will see gold continue to be hindered. Precious metals have political, inflation, currency, and industrial influences that all weight into the valuations.

Gold always being viewed as a safe haven in time of market volatility is may continue to gather attention from investors. Whiles the Turkey gold surge is small by global standards it could be seen as a sign of further upside potential. As international stocks wavier investors will look at alternatives like precious metals for investing. While many factors are affecting the precious metal market the Khashoggi killing has not contributed to the volatility so far.