Saudi opening puts Middle East on investor maps
Major economic reform in world’s top oil exporter
below 5 percent. What happens next may look like China’s domestic stock market, which grants licences to “qualified foreign institutional investors”, subject to an investment ceiling. It would also allow Saudi to limit foreign investment in sensitive areas, like real estate in the holy cities of Makkah and Medina.
Saudi easily outshines the stock markets in Middle East already afforded emerging market status by influential index compiler MSCI. It is bigger by market capitalization than Egypt, Qatar and the United Arab Emirates combined. Although recent scandals have dragged down the region’s reputation for corporate governance, Saudi’s capital market regulator is regarded as the best of the bunch.
Yet investors eyeing Saudi’s diversified blue-chip companies like Saudi Basic Industries Corp (SABIC), one of the world’s largest petrochemical companies, Saudi Telecom , and food groups Savola and Almarai , will have to contend with remarkable volatility. At 17 times price to earnings for this year, the benchmark Tadawul index is also more expensive than global peers such as Brazil, China, India and Russia.
Despite the risks, Saudi’s big draw is its stability. The country’s rulers were rattled by the Arab spring even though there was never any real chance that they would be toppled like their neighbours. Still, the King Abdullah pledged $130 billion of extra spending to limit the contagion - which has, in turn, helped to boost share prices. With GDP growth at 4 percent, a dividend yield of 3 percent, and no sign that oil prices will fall any time soon, Saudi’s opening looks compelling.
Saudi Arabia plans to open up to direct investment by foreign financial institutions in the first half of 2015, the market regulator said on July 22.
“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 (CMA) said in a statement after the country’s cabinet gave the green light for the move.
The CMA said it would publish draft regulations for the reform next month and then hold a 90-day consultation period. Index compiler MSCI said it will consult with investors about adding Saudi Arabia to its broader stock indices and could place it on review for classification as an emerging market in June 2015.
If Saudi Arabia only partially opens up in the same way as the Chinese domestic “A” share market, which sets a quota for foreign investors, it would likely be a standalone index, MSCI executive director Sebastien Lieblich said.
Foreigner investors outside of the neighbouring Gulf countries can currently only invest in the Saudi stock market using swap agreements through local authorized brokers. They make up less than 5 percent of the market and around 2 percent of turnover.
The Saudi benchmark Tadawul index rose 2.8 percent on July 22 following the announcement by the CMA.
Saudi Arabia plans to open its stock market, the Arab world’s biggest, to direct investment by foreign financial institutions in the first half of next year, the market regulator said on Tuesday.
The opening of the Saudi market, capitalised at about $530 billion, is one of the most keenly awaited economic reforms in the world’s biggest oil exporter. The bourse would be one of the world’s last major exchanges to begin welcoming foreign money.
“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.
Saudi authorities want 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.
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. (RTRS)