Saudi Arabia to open $530 billion stock market to foreign investors

23 July 2014   Category: News, Global, Middle East, Saudi Arabia   By Daniel Shane

Saudi Arabia has said it will open up its bourse to overseas investors for the first time, finally giving foreign institutions direct access to the Middle East’s deepest capital market.

A statement posted on the country’s official media agency said that the Saudi cabinet had given the Capital Markets Authority (CMA) permission to begin the process of opening up the market, without giving a timeline.

Saudi Arabia’s stock exchange has a market capitalisation of more than US$530 billion, but is currently only directly accessible by investors within the kingdom or from neighbouring Gulf Co-operation Council countries.

According to data from Bloomberg, Saudi’s Tadawul All Share Index has risen by more than 17% in the year-to-date. Securities listed on the index include Saudi Basic Industries Corporation, the world’s largest petrochemicals company; Islamic lending giant Al Rajhi Bank; and King Holding Company, an investment firm that owns sizeable stakes in Citigroup, Apple, and Twitter, among others.

“Being the broadest and deepest market in the region, Tadawul benefits from strong regional and investor interest,” Asjad Yahya, senior vice president, research, at Dubai-based asset manager and investment bank, Shuaa Capital, told Asia Asset Management.

“The underlying demographics of Saudi Arabia – rapidly rising population that is dominated by nationals – also forms a very attractive demand base for companies operating in the country, hence increasing attractiveness for investors,” he added.

Mr. Yahya also said that any move to open up the bourse to foreign investors would improve the chances of the market being included in global indices issued by the likes of MSCI and S&P Dow Jones Indices. “Lack of foreign ownership has been a key hurdle identified by index managers for not including Tadawul on global indexes,” he said.

Earlier this year, two nearby Persian Gulf stock markets – the United Arab Emirates and Qatar – were upgraded to emerging markets status by MSCI. The decision came after Qatar agreed to change its foreign ownership limits.

Following the announcement, Reuters reported that Saudi authorities could use a system similar to China’s QFII and RQFII processes to regulate foreign investment into the stock market. The news agency said that qualified investors could be awarded quotas based on their AUM, while certain securities would have foreign ownership limits.

Saudi Arabia’ decision to open its bourse to foreign investors comes as the kingdom, the world’s largest exporter of crude oil, seeks to diversify its economy away from petrochemicals.