Middle-east Arab News Opinion | Asharq Al-awsat

Saudi Arabia opens stock market to foreign investors
Select Page
A Saudi man looks at stocks at the Tadawul Saudi Stock Exchange, in Riyadh, Saudi Arabia, on June 15, 2015, as the 585 billion US dollar exchange opened up to direct foreign investment for the first time on Monday. (AP Photo/Hasan Jamali)

A Saudi man looks at stocks at the Tadawul Saudi Stock Exchange, in Riyadh, Saudi Arabia, on June 15, 2015, as the 585 billion US dollar exchange opened up to direct foreign investment for the first time on Monday. (AP Photo/Hasan Jamali)

Riyadh, Asharq Al-Awsat—Saudi Arabia’s stock market, the Tadawul, on Monday opened to foreign investors, a long-awaited move for the Middle East’s largest bourse.

Despite a market capitalization of 585 billion US dollars, this is the first time the Tadawul has opened to foreign direct investment. Smaller regional exchanges such as the Abu Dhabi Securities Exchanges (ADX), valued at 123 billion dollars, and the Qatar Stock Exchange (QSE), which at 174 billion dollars is Tadawul’s closest rival in the Middle East in terms of market cap, are all open to foreign investment.

Though Tadawul has for years been open to foreign direct investment from Gulf countries, other foreign investors have only been able to own shares traded on the exchange since 2008—even then only indirectly via swaps and exchange-traded funds (ETFs).

The move to liberalize the exchange for foreign direct investment has been touted for years but has been beset by delays, mainly due to the concerns of local investors over the potential for aggressive foreign ownership of domestic firms.

Under the new regulations, foreign institutions will not be able to own more than 5 percent of shares in any individual listed company. Foreign investors as a whole also cannot own more than 20 percent of shares on all the market’s listed companies.

According to Mohammed Aljadaan, the chairman of Saudi regulator the Capital Market Authority (CMA), through opening up the market the Kingdom is seeking to reduce volatility through encouraging investment by institutions in favor of individuals, a move that should improve the market’s regulation and lead to higher standards of corporate governance in Saudi companies.

Tadawul’s Chief Executive Adel Al-Ghamdi has said the Kingdom is hoping to attract “sophisticated, longer-term” investors who will be able to take an active role in shaping the direction of the Saudi companies they invest in.

The benchmark index Tadawul All-Share Index (TASI) fell 0.9 percent to 9561.70 points at close on Monday and 0.17 percent on Tuesday to reach 9,544.51 points.

But the exchange’s size, liquidity and diversity of companies listed should be attractive to foreign investors looking to capitalize on its rapid growth in recent years. Since regulation of the market was tightened with the creation of the CMA in 2003, the exchange has grown rapidly. In the past three years alone, it has seen a 72-percent rise in its market cap, up to 585 billion dollars in 2015 from 341 billion dollars in 2012.

Long term, analysts expect the move to draw in between 20–40 billion dollars in foreign investment in the next few years.

It should also speed up the Tadawul’s inclusion on MSCI’s emerging markets index, regarded as a benchmark by emerging market-focused fund managers. Ghamdi said the exchange was targeting inclusion by 2017.

Speaking to Asharq Al-Awsat on Monday, traders expected market activity from foreign institutions to eventually pick up as investors study their options and become more confident about the market’s long-term prospects.

“There are real opportunities in the Saudi market. All that is missing is better performance by the management teams of [listed] companies,” said Faisal Al-Rawqi.