News Column

Saudi Arabia to open stock market to foreigners in first half of 2015

July 22, 2014

— Bloomberg News

Riyadh: Saudi Arabia will open up its stock market to foreign investors in the first half of 2015, providing greater access to the Arab world's biggest exchange. The benchmark index surged to the highest level in six years.

The Capital Market Authority (CMA) will publish next month rules for participation by qualified foreign financial institutions in the market, the regulator said in a statement on its website. The Tadawul All Share Index surged three per cent to 10,046.64, the strongest level since May 2008, as of 12:21pm in Riyadh.

Saudi Arabia is removing barriers on one of the world's most-restricted major stock exchanges as the government pursues a $130 billion spending plan to boost non-oil industries. The kingdom's ruler has kept the economy expanding at an average rate of 6.4 per cent in the past four years even as Middle Eastern neighbours from Egypt to Iraq and Dubai grappled with political and financial-market turmoil.

"The big sleeping giant in the region is Saudi Arabia, a well-capitalised and large market that foreigners couldn't get access to," Gary Dugan, the chief investment officer at National Bank of Abu Dhabi, said by phone from Abu Dhabi. "It's exciting. It gives greater credibility to the region."

The cabinet on Monday authorised overseas financial institutions to trade equities in the Tadawul All Share Index and gave the CMA scope to determine timing, according to the official news agency, SPA.

MSCI inclusion

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. Saudi's exchange is currently limited to domestic investors and foreigners from the six-nation Gulf Cooperation Council.

The move is a "giant step" toward inclusion in MSCI's emerging-markets index, NBAD's Dugan said. Saudi Arabia is the biggest stock market outside China, where domestic shares are excluded from MSCI's global gauges because of limits on foreign investors, according to data compiled by Bloomberg.

Emerging-markets gauge

Saudi Arabia will be added to MSCI's emerging-markets gauge by 2017 at the earliest, Sebastien Lieblich, executive director at MSCI Index Research, said by phone from Geneva on Tuesday. The nation would account for about four per cent of the index, he said.

The United Arab Emirates' exchanges, along with Qatar's, began trading as emerging markets last month after index provider MSCI reclassified them in June 2013.

"The move by Saudi Arabia helps accelerate efforts by the Gulf into becoming a more mainstream destination for international investors," Ryan Huang, Singapore-based market strategist at IG Ltd., said by e-mail on Tuesday. "Opening up the market will be a liquidity boost for Saudi corporations."

CMA draft

Saudi Basic Industries, the world's biggest petrochemicals producer; Kingdom Holding, the investment vehicle of billionaire Prince Alwaleed bin Talal Al Saud; and Al Rajhi Bank, the largest Islamic lender, are all listed on the Tadawul. Sabic surged 7.3 per cent on Tuesday, set for the highest close since September 2008.

The Tadawul has rallied 18 per cent so far this year, compared with a 6.9 per cent advance in the MSCI Emerging Markets Index and a 15 per cent increase in the MSCI GCC Countries Index.

The Capital Market Authority  drafted a proposed set of rules for international investors more than a year ago, requiring a minimum $5 billion of assets under management and a five-year operating history.

The rules, designed to limit speculative inflows, would also cap investment in local companies, a person with knowledge of the matter said in May.

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Source: Times of Oman

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