Saudi to allow foreign investment in kingdom's stock market
Economists have welcomed the Cabinet’s decision to allow foreign investment in Saudi stock market.
“This is doubtless a very significant development,” Jarmo T. Kotilaine, a regional analyst, told Arab News.
The decision to allow direct foreign investment in the stock market comes as the Kingdom works to diversify its economy away from oil.
The Cabinet has authorized overseas financial institutions to trade equities in the Tadawul All-Share Index and gave the Capital Market Authority scope to determine timing.
The Cabinet's decision paves the way for foreign financial institutions to directly buy and sell stocks listed on Saudi Arabia's SR1.99 trillion ($530 billion) Tadawul All Share Index starting sometime in the first half of 2015.
The CMA said it will seek feedback from investors and the public on the rules for 90 days and will review responses by the end of the year.
The exchange is currently limited to domestic investors and foreigners from the Gulf Cooperation Council.
Mohammed Al-Sheikh, chairman of CMA, thanked Custodian of the Two Holy Mosques King Abdullah and Crown Prince Salman, deputy premier and minister of defense, for allowing the CMA to accept foreign investment in the stock market.
He said the authority would present draft regulations for foreign investment in capital market and present it to experts next month to give their opinion within 90 days.
The CMA will finalize the rules and regulations by the end of this year in light of the opinions and recommendations.
"We'll also check the preparedness of Tadawul and coordinate with relevant government agencies before giving final endorsement to the law governing foreign investment in Saudi bourse,” he was quoted as saying in a statement.
The chairman hoped that the opening up of the market for foreign financial firms would start by the middle of 2015.
Commenting further on the landmark decision, Kotilaine said: “This marks a qualitative change in the accessibility of the Saudi market but still, at least in principle, gives the regulator discretion as to what kinds of investors are licensed and at what pace.”
He said: “It should not only attract more capital to the Saudi market but also contribute further to the ongoing process of developing quality research on Saudi equities.”
Kotilaine said: “The focus on foreign institutions should also mark another important step in the gradual institutionalization of the Saudi stock market. The ultimate impact of both should be a stronger link to market fundamentals and reduced volatility.”
The Tadawul Index has rallied 18 percent so far this year, compared with a 6.9 percent advance in the MSCI Emerging Markets Index and a 15 percent increase in the MSCI GCC Countries Index.
"This is a positive news for the Saudi stock market,” said Basil M. Al-Ghalayini, CEO of BMG Financial Group, commenting on the latest moves to liberalize the stock exchange.
He said: “After years of anticipation on opening the Saudi market directly to foreign investors, now with this announcement it is finally official.”
He, however, said: “We still do not know the details of this new directive, but I believe it will be a gradual process to ensure attracting mainly institutional investors.”
He added: “Furthermore, the concerns over frequent volatility by major foreign investors will be addressed in the new rules and regulations. This new directive, in my opinion, will eventually reopen the inclusion of the Saudi Tadawul index into the MSCI emerging markets indexes."
John Sfakianakis, a Riyadh-based investment adviser, said: “The Kingdom is potentially a boon for international investors seeking exposure to one of the world's wealthiest nations. Although the intention to allow foreign investment into Saudi shares has been on the cards for at least a decade. The government has finally decided to press ahead with the measure as part of a series of gradual liberal reforms.”
The main Saudi index jumped 2.8 percent on Tuesday, its biggest rise since last October, to a fresh six-year closing high of 10,025 points.
Trading volume was the highest in six weeks.
The value of traded shared reached SR12.24 billion on Tuesday.
Petrochemical giant Saudi Basic Industries (SABIC), one of the big blue chips which foreign investors would be expected to favor, was the main contributor to the rise, surging 6.9 percent. By itself the company accounts for about a quarter of the Saudi market's total corporate profits.