The Saudi Arabian government's recent decision to allow foreigners to invest in the Saudi stock market through mutual funds probably will not have a lot of U.S. fund companies jumping at the chance to do business there, some industry analysts said.

That is because the Saudi market, like most in the Middle East, is undeveloped compared to other markets, and it is fairly risky for investors, they said.

The Saudi Arabian government announced on Nov. 1 that it would allow non-Saudi citizens to invest in the Saudi stock market for the first time, through mutual funds, said Ramy Shalan, a mutual fund analyst at Wiesenberger of Rockville, Md.

Phelps McIlvaine, a spokesperson for the Amana Fund of Bellingham, Wash., which bases its investment decisions on Muslim principles, said that the change in the Saudi market will not affect the fund, because it does not invest directly in foreign markets, but uses ADRs instead.

Larger fund firms are more apt to invest in these more tenuous markets, McIlvaine said.

"We're not in that league," said McIlvaine.

Investors in developing markets should ask many questions about who is holding their money, who is tracking it and how the value of their investments will be reported, said McIlvaine.

"Just because you can go to Pakistan and buy directly is one thing," he said. "It's only one part of the puzzle."

The Saudi market is being opened so that foreign individuals can invest directly in it, rather than go through intermediaries, as they have had to in the past, said Said Suleman, portfolio manager of the Miraj Global Equity Fund, an offshore fund based in Guernsey, the Channel Islands, that invests according to Islamic investment principles.

"It's a great start for the Saudi government and particularly a great opportunity in the history of the Saudi stock market," Suleman said.

But, the Saudi stock market has a way to go before it has the up-to-date information and disclosure that foreign firms want, he said.

Some Saudi stocks can be attractive, and in the future, the Miraj fund will invest in that market, he said.

In the past, Middle Eastern countries have been reluctant to allow foreign investment. Morocco and Egypt are the most open markets and Lebanon, Jordan and Kuwait are open "to an extent," Suleman said. Because the markets are still in their infancy, the Dow Jones Islamic Market Index, which opened earlier this year, does not include stocks of Middle Eastern countries, he said.

There is only one U.S. fund that identifies itself as a Middle East sector fund, the Merrill Lynch Middle East/Africa Fund, which was opened in December 1994, according to Wiesenberger.

Its three-year average return has been only 3.46 percent, and for all its share classes (A,B,C, and D) it only has about $3 million in assets, as of Aug. 30.

It has very high expense ratios of between six and seven percent, depending upon its share class. The Class B shares have a 7.51-percent expense ratio, one of the highest in its category, Shalan said.

A change in the Saudi market is unlikely to make a big difference in the fund industry, said Russ Kinnel, an analyst with Morningstar of Chicago.

Neither mutual funds that attempted to take advantage of the fall of the Berlin Wall or an Eaton Vance fund that attempted to capitalize on the reunification of Hong Kong and mainland China did very well, he said.

"Anytime you try to open a fund based on a huge political event, it rarely works," Kinnel said.

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