(MENAFNEditorial) On May 4, 2015, the Saudi Arabian Capital Market Authority (CMA) released the "Rules for Qualified Foreign Institutions Investment in Listed Shares," which sets the stage for institutional investors based outside of the GCC to make direct investments in Saudi Arabian equities for the first time. Although additional steps will need to be taken in the future to further improve market accessibility, the QFI program is a key step in the development of Saudi Arabia's equity market.
The QFI rules, which are expected to become effective on June 1, require institutions to register with the CMA and meet certain qualifications based on assets under management and experience in the financial services industry. In aggregate, all QFIs will be allowed to own a maximum of 20% of any listed company and a single QFI will be limited to a 5% stake in a single company.
Without a doubt, the QFI program marks a historic moment for Saudi Arabia's capital markets. Anticipation surrounding the opening of the Saudi market to foreigners has buoyed the country's equity market over the past few years despite a steep swoon in the second half of 2014 driven by the plunge in oil prices. As of April 30, the S&P Saudi Arabia BMI gained an annualized 11.3% over the past three years, widely outperforming the 2.4% return of the S&P Emerging BMI and even besting the 10.8% return of the S&P 500.
Figure 1: Comparative Total Returns as of April 30
Source: S&P Dow Jones Indices. Calculations are based on total return index levels in USD. Returns over one year annualized.
Figure 1: Comparative Performance (Apr 2010 – Apr 2015)
Source: S&P Dow Jones Indices. Calculations are based on total return index levels in USD.
S&P Dow Jones Indices calculates and publishes more indices than any other index provider for the Saudi Arabian market and throughout the GCC. Through our acquisition of the International Finance Corporation (IFC) Indices in 2000, we have been calculating Saudi indices since 1997.
In addition to our flagship S&P Saudi Arabia Index, we publish various size, sector and industry subsets in the region to measure different segments of the market as well as blue-chip indices such as the Dow Jones Saudi Titans 30 that have been designed to underlie index-based financial products. We also provide with multiple versions of various indices reflecting the differing opportunity sets available to domestic Saudi Arabian investors and GCC nationals due to foreign investment restrictions.
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