Following a resolution passed by the country’s Council of Ministers last year, the Capital Market Authority will be permitted to allow foreign institutions to trade shares that are listed on Tadawul, the Saudi Stock Exchange. The shift is estimated to bring around $40bn of foreign capital into the economy.
The shift is estimated to bring around $40bn of foreign capital into the economy
On April 16, the CMA revealed that the $509bn stock market will be opened to the rest of the world on June 15, with the final rules due to be published on May 4.
As the self-set deadline of the first half of 2015 soon approaches, the frustration of foreign investors continues to grow due to the lack of detail and transparency given so far. With only eleven weeks to go, Riyadh-based CMA has yet to divulge how existing rules and new restrictions on foreign involvement in the Saudi business sector will be amalgamated.
The country’s ‘negative-list,’ which catalogues businesses that forbid foreign participation, will be extended to the Tadawul also. For example, the real-estate market in Islam’s holy cities, Makkah and Medina, will continue to be barred from foreign investment. Several companies have been specified so far, including Jabal Omar Development Co, Makkah Construction & Development Co and Taiba Holding Co., which, according to Gulf Times, collectively account for approximately seven percent of the Tadawul All Share Index.
Granting direct investment to foreign enterprises is part of the country’s $130bn strategy to bolster non-oil industries. As 90 percent of the Saudi economy currently relies on the energy sector, a far greater focus will be paid to diversification, particularly given the volatility of the global market and plummeting oil prices.
“Initially, you’ll see additional liquidity being injected mainly by local investors,” John Sfakianakis, the Regional Director GCC for Ashmore Group, told Bloomberg. “International investors would come in multiple phases and would provide positive momentum over the short to medium term. Overall this is very positive as it’s what international and local investors have been waiting for.”