Saudi Aramco Surpassed Apple: Can You Invest in the Stock?

Mohit Oberoi, CFA - Author
By

May 16 2022, Published 8:21 a.m. ET

Apple has several firsts to its name. It was the first company to hit a market cap of $1 trillion and $2 trillion. The iPhone maker hit a $3 trillion market cap on the first trading day of 2022 but has since pared gains. Saudi Aramco has now surpassed Apple to become the largest company by market cap.

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Aramco is Saudi Arabia’s state-owned oil company and listed in 2019 after months of deliberations. The initial valuation was way below what Saudi Arabia was originally looking at. However, as investors would recall, crude oil prices were subdued back then. Global crude oil prices surged in 2022 after Russia invaded Ukraine. Rising crude oil prices have lifted Saudi Aramco’s earnings and propelled its stock to new highs. Can U.S. investors invest in the Saudi oil giant directly or through an ETF?

Saudi Aramco stock trades on the Tadawul stock exchange.

Saudi Aramco stock trades on Tadawul, which is Saudi Arabia’s stock exchange. The company doesn't trade on any other exchange and the only way to invest directly in the company is through the stock on the Tadawul stock exchange.

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Saudi Aramco trades under the ticker symbol "2222.SR."

Saudi Aramco trades under the ticker symbol "2222.SR." While Saudi Arabia allows foreign investors to invest in the country, there are a lot of restrictions. First, it only allows institutions and billionaires to invest directly in Saudi stocks. Also, there are restrictions on how much of a company foreigners can hold.

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Can U.S. retail investors buy Saudi Aramco stock?

If you're a retail investor based in the U.S. and you want to buy Saudi Aramco stock directly, you can't do so under the current rules. However, it doesn't mean that there isn't a way that you can gain some sort of exposure to the oil giant.

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ETFs have emerged as a popular investment option over the last decade due to their low costs. ETFs are an option if you want to have some exposure to Saudi Aramco in your portfolio.

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The KSA ETF can give you exposure to Saudi Aramco stock.

The iShares MSCI Saudi Arabia ETF (KSA) is one ETF to indirectly invest in Saudi Aramco stock. While Saudi Aramco is the largest company in Saudi Arabia, it's the fourth-biggest holding for the ETF and only accounts for 5.24 percent of the portfolio. The Al Rajhi Bank and the Saudi National Bank are the top two holdings accounting for 15.6 percent and 12.8 percent, respectively, of the portfolio.

The ETF has gained just over 20 percent in 2022 based on May 10 closing prices. The fund has an expense ratio of 0.74 percent and has total assets of $1.45 billion. There's ample liquidity in the ETF and the average daily trade volumes are over 780,000. The volumes have spiked lately amid renewed interest in U.S. investors toward Aramco.

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Other ETFs give investors access to Saudi Arabia.

The Franklin FTSE Saudi Arabia ETF (FLSA) is another ETF to invest in Saudi Arabian stocks. Saudi Aramco is the third-largest holding for the ETF and accounts for 8.5 percent of the ETF. FLSA's expense ratio of 0.39 percent is much lower than in KSA. However, it only has around $4 million in assets, and about 1,500 units change hands on an average daily.

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What are the risks of investing in Saudi Aramco stock?

The tech crackdown in China and more recently the Russia-Ukraine war highlighted the risks of investing in foreign stocks. As for Saudi Arabian stocks, the country’s economic policies don’t encourage foreign investment in stocks, unlike say emerging countries like India which need foreign capital.

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Even if it wasn't obvious, Saudi Aramco made it amply clear in its IPO filings. It said, “The interests of the Government, the Company’s controlling shareholder, may differ from the interests of the Company or the Company’s minority shareholders.”

Should you invest in Saudi Arabian stocks?

Even if you want to get exposure to the energy sector, buying a Saudi Arabia ETF isn't the best way. Corporate governance issues notwithstanding, these ETFs have single-digit exposure to Saudi Aramco, which looks low.

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If you want to bet on the rise in energy prices, you might be better off buying a U.S.-traded energy company. Warren Buffett has been scooping shares of Chevron and Occidental Petroleum over the last six months.

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