Jeddah : The Saudi Arabian Council of Ministers has approved opening its stock market, the largest in the Arab world, to direct foreign investment starting sometime in the first half of 2015, the market regulator said on Tuesday.
The Saudi market is capitalized at about $530 billion and is one the most waited for financial reforms in the world’s oil top exporter. The bourse would be one of the world’s last major exchanges to begin welcoming foreign money, according to Reuters.“The market will be open to eligible foreign financial institutions to invest in listed shares during the first half of 2015, with God’s permission,” the Capital Market Authority said in a statement. Following the announcement, the Kingdom’s benchmark Tadawul All-Share Index (TASI) surged on Tuesday by more than three percent, reaching its highest level in nearly seven years.A number of powerful companies are listed on Tadawul, including one of the world’s largest petrochemical groups, Saudi Basic Industries Corp.
The International Monetary Fund on Monday raised its economic growth forecast for Saudi Arabia from 4.1 to 4.6 percent. Motlaq al-Bogami, editor-in-chief of the Saudi online business websiteMaaal.com, described the decision as “necessary for the Kingdom to be part of the global economy.”In addition, the influx of foreign investment into the Saudi market is likely to “instill confidence in the Saudi economy as whole,”Bogami said.The government also seeks to open the stock market to create jobs, diversify the economy beyond oil and expose local firms to more market discipline. They have been preparing the reform for years and have completed most technical preparations.
But the government has delayed implementing the reform, apparently concerned about causing volatility in the market as well as the political sensitivity of allowing foreigners to build large stakes in top Saudi companies, according to Reuters. Currently, foreigners are limited to buying Saudi stocks via swaps involving international banks and through a small number of exchange-traded funds, which are relatively expensive and inconvenient options. Foreigners are at present believed to own no more than about 5 percent of the Saudi market, and to account for a smaller fraction of stock trading turnover.
Potential foreign interest in Saudi stocks is huge, because of the country’s strong economy – the International Monetary Fund on Monday raised its forecast for Saudi growth this year to 4.6 percent – and the presence of some of the region’s top blue-chip firms. These include Saudi Basic Industries Corp, one of the world’s largest petrochemicals groups, and National Commercial Bank, the kingdom’s largest lender, which plans an initial public offer of shares later this year that could be worth $4 billion to $5 billion.“This is a massive move for Saudi and for the region,” said Rami Sidani, head of Middle East investments at Schroders, a top European fund manager, which already has about $250 million invested in Saudi Arabia through indirect means.
He added that the country “will definitely attract massive inflows.”The Saudi market index jumped 1.6 percent in early trade on Tuesday in response to the news, bringing its gains so far this year to 16 percent.Foreign investors are estimated to own about 15 percent of other, much smaller stock markets in the Gulf such as Dubai. If foreigners raise their ownership of Saudi Arabia to that level, it could mean an inflow of some $50 billion into the country.