London, Asharq Al-Awsat-The Saudi stock market-the largest stock market in the Middle East-is expected to witness a radical shift in the forthcoming period following a royal decree appointing Mohammed bin Abdulmalik Al Al-Sheikh as the new head of the Capital Market Authority (CMA).

Al-Sheikh will have to resolve a number of outstanding issues in order to ensure that the Saudi stock market attracts investment and is able to compete with the real estate market in this regard. It was the imbalance between the two markets that led to huge inflation in the real estate sector. This inflation must be reduced in order to prevent any collapse, as occurred with the 2006 “Black February” market crash.

According to Saudi economic expert Fadl Al-Buainain, the first challenge facing Saudi Arabia’s new CMA chief is to secure capital flow to the stock market, ensuring that this is viewed as an attractive prospect for investors. He also emphasized the need for balance between the stock and real estate market in terms of attracting capital to Saudi Arabia.

Al-Buainain also informed Asharq Al-Awsat that the Saudi stock market has remained static for a long period of time and required urgent reform. He said, “The second challenge is that the Saudi stock market is in need of structural reform, particularly as the market is restricted in terms of its transactions, which has resulted in the absence of market makers capable of securing a market for the long-term, at a time that the Saudi market has primarily become a speculative market” According to the Kuwait-based Global Investment House (Global), Saudi Arabia’s Tadawul All Share Index (TASI) made a gain of 6 percent, ending 2012 on a “positive note”. This marked a rebound for the Saudi market, which had recorded a loss of 3.1 percent in 2011.

The Global report also indicated that TASI closed at a high of 7.944.36 points on April 2, which represented a 23.6 percent increase since the beginning of the year against the backdrop of strong expected earnings and positive economic news. The report added that corporate earnings rose 20.4 percent in 2011, with these earnings being led by the petrochemical and banking sectors which reported an increase of 38.5 percent and 18.4 percent respectively. In addition to this, Saudi Arabia’s gross domestic product (GDP) rose 7.1 percent in 2011, which represented a significant improvement to 2010’s 5.1 percent growth rate.

Returning to the challenges facing new CMA chief, Al-Buainain asserted that the third challenge that Al-Sheikh must confront is to ensure that the market carries out its essential roles, including supporting the investment sector, particularly in terms of the Sukuk and bonds markets. He claimed that both the Sukuk and bonds markets failed to play their required role in the past period which calls for more support for these financial products to carry out their required role.

Al-Sheikh’s fourth challenge is to restore confidence to the market, particularly in terms of attracting investment and achieving profitability for investors. Al-Buainain confirmed that the large number of restrictions does not help potential investors to increase their market activity, and has begun to repel, rather than attract, investors. The Saudi economic expert also cited the Dow Jones index, which is witnessing significant changes today, helping to create a stronger market.

As for 2013, the Saudi stock exchange has already recorded a 3.5 percent increase in January compared to December 2012.

Saudi Arabia’s Northern Region Cement Co. was the last company to list on the national stock exchange in 2013, raising the number of listed companies to 159, representing 15 different sectors.

Regarding the final challenge facing Saudi Arabia’s new CMA head, Al-Buainain emphasized that this is to simplify market transactions in order to achieve market balance as well as benefit investors and national development, by encouraging investment. This can ensure balance growth according to the rules and regulations and away from market speculation.

According to a report by Albildad Investment Company, the companies listed on Saudi Arabia’s stock market recorded profits of 97.5 billion riyal (26 million dollars) in 2012, witnessing a 2.1 percent increase in profit from the previous year which saw profits of 95.4 billion riyals (25.4 million dollars).