Islamic Finance Upraisal In Saudi Arabia
Crown Prince Salman Bin Abdulaziz, deputy premier and minister of defense, chairs the Council of Ministers session in Jeddah late Monday. – SPA
- Saudi stock market index surges to a six-year-high level
- MSCI could add Kingdom as emerging market next year
Saudi Gazette report
JEDDAH – The Kingdom plans to open its stock market, the Arab world’s biggest, to direct investment by foreign financial institutions in the first half of next year, the market regulator said on Tuesday.
The opening of the Saudi market, capitalized at about $530 billion, is one of the most keenly awaited economic reforms in the world’s biggest oil exporter. The bourse would be one of the world’s last major exchanges to begin welcoming foreign money.
“The market will be open to eligible foreign financial institutions to invest in listed shares during the first half of 2015,” the Capital Market Authority (CMA) said in a statement.
The Council of Ministers chaired by Crown Prince Salman Bin Abdulaziz, deputy premier and minister of defense, late Monday approved the opening up of the Saudi stock market to foreign investors and gave the Capital Market Authority (CMA) scope to determine timing, the Saudi Press Agency reported.
CMA will publish next month rules for participation by qualified foreign financial institutions in the market, the regulator said in the statement on its website.
With the announcement the benchmark index surged to the highest level in six years.
The Stock Market (Tadawul) index cut through the level of 10,000 points, achieving gains exceeded 3% after the opening of the market on Tuesday.
Index compiler MSCI will consult with investors about adding Saudi Arabia to its broader stock indices and could make a decision to include it as an emerging market in June 2015, an MSCI official said on Tuesday.
Sebastien Lieblich, executive director in the index research team at MSCI, said MSCI would wait for the changes to be implemented before consulting investors, with a decision as to whether to include it as emerging market unlikely to be made before June 2015.
“We need to be convinced that everything is at emerging market standards,” he said.
If Saudi Arabia only partially opens up to foreign investors, in the same way as the Chinese domestic “A” share market, it would likely be a standalone index, Lieblich added.
Currently, foreigners are limited to buying Saudi stocks via swaps involving international banks and through a small number of exchange-traded funds, which are relatively expensive and inconvenient options. Foreigners are at present believed to own no more than about 5 percent of the Saudi market, and to account for a smaller fraction of stock trading turnover.
Potential foreign interest in Saudi stocks is huge, because of the country’s strong economy and the presence of some of the region’s top blue-chip firms. The International Monetary Fund on Monday raised its forecast for Saudi growth this year to 4.6 percent.
The top blue-chip firms include Saudi Basic Industries Corp, one of the world’s largest petrochemicals groups, and National Commercial Bank, the Kingdom’s largest lender, which plans an initial public offer of shares later this year that could be worth $4 billion to $5 billion.
“This is a massive move for Saudi and for the region,” said Rami Sidani, head of Middle East investments at Schroders, a top European fund manager, which already has about $250 million invested in Saudi Arabia through indirect means.
He added that the country “will definitely attract massive inflows.”
Foreign investors are estimated to own about 15 percent of other, much smaller stock markets in the Gulf such as Dubai. If foreigners raise their ownership of Saudi Arabia to that level, it could mean an inflow of some $50 billion into the country. – With agencies
Originally published on www.saudigazette.com.sa