(MENAFN- Khaleej Times) CMA plans to open up $530b market to international investors
The Saudi bourse is the largest equity market in the GCC with about 50 per cent of the total market capitalisation. — AFP
Saudi Arabia has planned to open its $530 billion bourse to direct investment by foreign financial institutions in the first half of 2015 the regulator announced on Tuesday.
Industry specialists welcomed the move of the Capital Markets Authority or CMA and said the opening of the Arab world’s largest stock market is a major step for the Saudi economy and also for its local bourse and wider Middle East markets. “The market will be open to eligible foreign financial institutions to invest in listed shares during the first half of 2015 with God’s permission” the CMA said in a statement.
This opening has been long awaited by the markets and will further open the market to foreigners who are now able to invest in the market only indirectly through swap transactions mutual funds and a few ETFs. The Saudi stock market is the largest equity market in the GCC with about 50 per cent of the total market capitalisation and 70 per cent of trading volumes.
“The CMA is expected to publish the rules over the coming months… We expect there will still be restrictions on foreign investors in the markets with foreign ownership limits likely to be placed on companies. Also we believe foreign investors will need to be approved by the CMA possibly in schemes similar to those run in China or India” Global Investment House said in a note on Tuesday. The latest news of the Saudi market should be positive for the Tadawul All Share Index or Tasi. At its close on Monday at 9750 points the Tasi is up 14.2 per cent year-to-date and 43 per cent since the end of 2012. On Tuesday the Tasi increased nearly three per cent to 10036.55 points.
“While foreign investor flows will likely not start for some time yet we believe the market will move higher in anticipation of the increased investments. In addition depending on the level of openness of the market the Saudi market may be considered for induction into the MSCI Emerging Markets index in the future” Global added in the note.
“The opening of the stock market could help strengthen and deepen the liquidity of the exchange and should act as a catalyst to attract international issuer appetite which I would see as a sensible next step” Steve Drake head of capital markets at PwC told Khaleej Times.
The developments should be good for both the local market and the wider Middle East region as wider international investment can be channelled through Saudi Arabia giving some of the large-cap Saudi businesses wider exposure to international investors Drake said adding: “We have seen various reform initiatives in Saudi Arabia and we believe the opening of the stock market will further support the strong regulatory environment being developed and championed by the CMA.”
Potential of foreign investors’ interest is huge in Saudi Arabia’s stock. At present foreigners are believed to own no more than about five per cent of the Saudi market.
Jahangir Aka SEI Investments managing director said: “This is only one of the many reforms going on in the country. The government of Saudi Arabia is determined to become a part of the global economy and this demonstrates another policy decision in that direction. I think this will continue the positive momentum we have seen in the Saudi GDP over the last five years.”
“The Saudi Arabia stock exchange is clearly the largest by market capitalisation and number of securities so [this represents] a very positive step for the GCC financial markets. On many fronts Saudi reform has been evolutionary rather than big bang and this is consistent with progressive reform. The long-term goal remains to open up Saudi Arabia for foreign investment both through private and public markets” Aka added.
— abdulbasitkhaleejtimes.com