London, Asharq Al-Awsat—Saudi Arabia will open its stock market to foreign financial institutions by mid-2015—a long-awaited move that sent the Arab world’s largest exchange surging to its highest levels since 2008 on Tuesday.
A statement on the website of the exchange, known as the Tadawul, said the country’s Capital Markets Authority would be finalizing regulatory procedures for the move by the end of the year after seeking the “opinions of investors and those concerned with these regulations within the next month . . . for a period of 90 days.”
The exchange will then be open to foreign financial institutions “during the first half of 2015,” the statement said.
The move 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.
Foreign investors have been able to own shares traded on the exchange since 2008, but only indirectly via swaps and exchange-traded funds (ETFs). The market has, however, been open to investors from the six-member Gulf Cooperation Council.
Foreign ownership of listed Saudi firms is currently no higher than 5 percent of the exchange’s total capitalization of 530 billion US dollars, Reuters reported.
But in recent years the Kingdom has been keen to diversify its economy and reduce its reliance on hydrocarbons, as well as draw in foreign investment. This year’s budget allocated a record 855 billion Saudi riyals (228 billion US dollars) in spending, much of it earmarked for investment in a number of non-oil sectors.
The exchange has not been included on major global indices such as MSCI’s Emerging Markets Index, on which smaller regional exchanges such as the Dubai Financial Market, the Abu Dhabi Securities Exchange and the Egyptian Exchange are all listed, because it is closed to foreign direct investment.
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 Capital Markets Authority in 2003, the exchange has grown rapidly. In the past two years alone, it has seen a 55 percent rise in its market cap, from 341 billion dollars to 530 billion dollars.
As of midday on Tuesday, the Tadawul All Share Index jumped 3 percent to 10,046.64, its strongest showing since May 2008.
Some of the largest companies listed on the exchange include manufacturing giant SABIC, telecoms operator Zain and the Samba Financial Group.