The Middle East’s biggest economy, Saudi Arabia, unveiled plans to open its $531 billion stock market to foreign investors in the first half of 2015.
Next month the Saudi financial regulator will publish rules for participation by qualified financial institutions in the market.
The much-awaited reform
In a statement released Monday, the government of the oil-rich kingdom said it had granted the Capital Markets Authority the power to give foreigners the right to buy and sell shares “at a time it sees as appropriate.” Though the liberalization move has been talked about for years, it was been delayed amid concerns that foreign ownership of large Saudi companies, which benefit from the public spending generated by the country’s huge oil revenues, would come at the expense of Saudi nationals. In 2008, the oil-rich kingdom began giving foreign investors indirect access to the market through swaps, though it has been hesitant to open the market fully.
Welcoming the announcement, Allan Conway, head of emerging market equities at Schroder Investment Management Ltd., said: “We already invest in Saudi Arabia in our frontier fund, though we have to do it through things like participatory notes, so if they open the market up it will simplify the process. Opening up will make it cheaper to deal as well, and not all stocks have participatory notes attached to them.”
Saudi Arabia index could head higher
The country’s benchmark Saudi Tadawul stocks index rose over 15% this year. Some analysts anticipate that the opening of the market to foreign investors is likely to send the index sharply higher. They predict large inflows if the country’s stocks are plugged into big international stock indexes. Moreover, some analysts believe Saudi Arabia could adopt a template similar to China’s qualified foreign institutional investor scheme, which effectively opens the door to specific investors to invest within preset limits.
The latest announcement toward the removal of barriers on one of the world’s most-restricted and major stock exchanges could benefit investors as the government pursues a $130 billion spending plan to boost non-oil industries. Sebastien Lieblich, executive director at MSCI Index Research said today that Saudi Arabia may be added to MSCI Inc.’s emerging-market gauge by 2017 at the earliest and that the nation could account for about 4% of the index.