Saudi Arabian stock market opens to foreign investors

Foreign direct investment in Saudi Arabia’s stock market will soon become possible.

One of the world’s most restricted stock exchanges will soon open up to foreign investors, according to Saudi Arabia’s Capital Market Authority (CMA). The move will take place on June 15th and is already attracting “absolutely phenomenal” interest, according to an expert at HSBC bank.

Saudi Arabia’s exchange is one of the most important in the region and is deemed one of the best in terms of liquidity and market capitilisation. Investors will be lining up to get first in the queue, and Deutsche Bank analysts predict that the region’s largest economy is set to be flooded by around $35 billion of rapid inflow.

“This is hardly surprising in view of the fact that the kingdom, which is OPEC’s largest exporter, currently accounts for 45 per cent of the Middle East and North Africa’s market capital and 65 per cent of regional liquidity, estimated at some $4 billion, which makes it the most liquid market in the region,” Deutsche Bank said in a briefing note.

Those looking to invest will need to have a five-year investment record and at least $5 billion of assets under management, according to the CMA’s statement, although it reserves the right to change the limit. Under the new rules, qualified foreign investors (QFI) will be able to invest directly in the stock market and buy up to 10 per cent of the shares of any company listed on Saudi’s stock exchange next month. In addition, foreigners will only be able to own up to 49 per cent of a single stock.

The Tadawul All Share Index has been the best performing index in the Middle East this year, racking up an impressive 17 per cent increase. Energy-related companies and financial firms make up the bulk of the Saudi market’s exchange and holds a number of genuine blue-chip firms.

Other strengths of the Saudi exchange that investors will be looking to capitalise on include the strongest pipeline of initial public offerings in the region, as well as the highest trading liquidity. Furthermore, index provider MSCI could classify Saudi Arabia as an emerging market within the next two years instead of the frontier classification, which would likely further pique the interest of investors.

However, Saudi’s gains may come at the expense of other regions in the Gulf and Middle East, such as the UAE and Qatar. This could cause investors to reduce their positions elsewhere in order to invest in the latest opportunity. Despite this, it will surely attract many investors that were not previously considering the region.