An impending bonanza: who will be investing the most in Saudi Arabia's opened up stock market?

Published April 23rd, 2015 - 08:50 GMT

The hundreds of billions of dollars that would flow into investments in Saudi Arabia once its $530 billion capital market opens up is likely to give a major boost to the contribution from Mena, said an industry expert.

Saudi Arabia will have 4 per cent weight in the Morgan Stanley Capital International emerging market index with the opening of the stock market to foreign investors, added K Vinod Cartic, senior consultant, Business & Financial Services, Frost & Sullivan, a growth partnership firm.

 “Saudi Arabia’s stock market, the Saudi Tadawul, lists very large conglomerates spanning various verticals in the region, including petrochemical leader Sabic (Saudi Basic Industries Corp.). The market is more than twice as large as UAE and more than thrice as large as Qatar,” said Cartic in a perspective released by Frost & Sullivan.

The country also evinces significant investor interest due to an active IPO (Initial Public Offering) market. In 2014, the National Commercial Bank, raised $6 billion in largest share sale in the history of IPOs in the Arab nations.

There are certain concerns for investors, especially those concerning regulation, transparency in procedures and (lack of) clarity in Government policies.

“Additionally, Saudi Arabia has an economy that is heavily skewed towards petroleum, with 90 per cent of all revenues coming from oil. For these reasons, Saudi Arabia is being viewed with caution as a risky proposition,” noted Cartic.

“However, the chance of investing in some of the world’s fastest growing companies provides commensurate opportunities for return. In comparison, with their neighbours, policy makers in Saudi Arabia have been seen as more pro-active and forward thinking. The Government also sees the huge potential for job creation arising out of foreign investments, for its burgeoning youth demography that is struggling to find employment.”

Saudi Arabia’s economy has been growing at an average rate of 6 per cent per annum. This is largely driven by energy, public sector and finance based companies. The inflow of foreign investment will help diversify this to multiple sectors, namely, information technology, education, infrastructure, chemicals, automotive, metals and manufacturing.

Saudi Arabia’s pivotal position on the globe, bridging the east and the west, implies that sectors like aviation and transportation will also have a huge role to play in the future, thus granting a more holistic look to the currently ‘oil- skewed’ Saudi economy. 

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