World Economy

S. Arabia to Open Stock Market to Foreigners

S. Arabia to Open Stock Market to ForeignersS. Arabia to Open Stock Market to Foreigners

Saudi Arabia will open its $532 billion stock market to direct foreign investment on June 15, allowing qualified foreign institutions to buy shares from that date, the Capital Market Authority said.

Final rules covering the opening of the market will be published on May 4, the regulator said in a brief statement, BI-ME reported.

Saudi Arabia announced last July that it would permit direct foreign purchases of shares in the first half of 2015, as a way to expose companies to market discipline, diversify the economy beyond oil and create jobs.

Fund managers believe tens of billions of dollars will eventually enter the country as a result; Saudi Arabia is the Arab world’s biggest stock market and one of its most diverse.

In draft rules released last August before a period of public consultation, the CMA proposed a 10 percent cap on foreign ownership of the market’s value. Among other draft rules, a single foreign investor could own no more than 5 percent of any listed firm, while all foreign institutions combined could own no more than 20 percent.

Up to now, foreign investors have been restricted to buying Saudi shares indirectly through swaps or exchange-traded funds.

The move is likely to start the process of incorporating Saudi Arabia into major equity indices by the likes of MSCI, and this could attract as much as $24 billion in foreign capital, according to one estimate.

Foreigners will still not have unfettered access and definitive rules have yet to be published. And yet the prospect of market opening has already helped the Saudi stock index to outperform its Persian Gulf peers over the past 12 months.

Nevertheless, the index is down 2.7 percent in the period as revenue from the Saudi oil industry, which accounts for more than 90 percent of government income, has shriveled.

“Everyone wants to have a crack at Saudi Arabia,” said Nick Smythie, chief investment strategist at Emerging Global Advisors. “It’s the biggest market in the Middle East and a substantial country which offers exposure not just to energy but also to infrastructure, financials and other sectors.”