BrokerDealer.com blog update courtesy of extract from 12 Sept article from Zawya, a Reuters service
Plans for new regulations on direct foreign investment in the Saudi Arabian stock market have been outlined, setting out requirements and limits for oversees buyers seeking to buy into the region’s biggest exchange.
On August 21 the Capital Market Authority (CMA) released detailed information on opening up the Saudi Stock Exchange (Tadawul) to foreign investors, following on from the Saudi cabinet’s approval for the initial proposal in late July.
Although this marks a further liberalisation of the market, a series of caps on trading will restrict the ownership levels within individual companies and overall foreign participation on the exchange.
Emerging market status
The combined market valuation of the Tadawul is around $530bn at present, representing about 45% of the total capitalisation in the MENA region. Jadwa Investment forecasts a $40-50bn injection from total foreign inflows beyond the short term.
The initial response to the reform was positive. The Tadawul rose some 10% up to the end of August, hitting a six-year high on August 26 with a surge in the value of shares bought by foreign investors via equity swaps. Since the release of the detailed draft regulations the market has eased off its highs of late August, possibly as investors digest the operational limits the CMA plans to put in place.
Even with the caps, investors will see the opening of the Tadawul to foreign buyers as a significant opportunity. Over the past decade, and despite the downturn in the wake of the global financial crisis, the exchange has shown a return of 120%, according to an HSBC report, issued in mid-August. Investors will also be lured by the strong fundamentals of the Saudi economy and outperformers such as the world’s biggest petrochemical firm, Saudi Basic Industries Corp (SABIC).
“The opportunity set for foreign investors is too significant to pass up given the quality of the corporations and market breadth relative to other frontier markets in the Middle East that come with a higher risk premium attached,” Neil Azous, founder of research firm Rareview Macro LLC, told Bloomberg.