Saudi Arabia’s $530 billion stock market is the biggest one in the Middle East and as of today, international investors have a strong reason to bet on it. The market regulator announced on Tuesday that in the first half of next year it plans to open it up to direct investment by foreign financial institutions. In recent months the country has pushed to attract greater international investment, trying to make the kingdom an investment-friendly country and reduce its dependence on oil revenue. Saudi’s exchange is currently limited to domestic investors and foreigners from the six-nation Gulf Cooperation Council.
“There is a lot of liquidity looking for a good home in Saudi Arabia. And importantly, the Saudi market has developed comfort with long-term debt issues in Saudi riyals,” Jamal Al-Kishi, chief executive officer of Deutsche Securities Saudi Arabia, told Arab News in January.
The move was expected in the financial world since the oil-rich country nation – the Organization of Petroleum Exporting Countries’ biggest producer – has made several hints that it seeks to diversify its economy and that economic reforms would arrive. Still, its a celebrated one; one that confirms that one of the world’s last major bourses is finally welcoming foreign money – the Saudi stock market is almost the same size as all the other equity markets in the Gulf put together. It values the market as being larger than Mexico’s and on par with South Africa’s, said London-based Capital Economics consultancy. “The market will be open to eligible foreign financial institutions to invest in listed shares during the first half of 2015, with God’s permission,” the Capital Market Authority said in a statement.
Some skepticism remains in the kingdom over foreigners building large stakes in top Saudi companies. Reuters reports that some of the region’s top blue-chip firms are located in the Saudi stock exchange – i.e. Saudi Basic Industries Corp (SABIC), one of the world’s largest petrochemicals groups, and National Commercial Bank, the largest bank by asset in the Arab world and one of the pioneers in Islamic Banking and finance, which plans an initial public offer of shares later this year that could be worth $4 billion to $5 billion. Other major sectors in Saudi Arabia include the banking industry, consumer goods, industrials and telecoms.
Many analysts see the move as a game-changing one, and while it may not be so drastic, the Saudi stock exchange will become an important piece in the global financial world as it will try convince investors that it’s the place to go to get attractive returns, low risk and high liquidity. Transparency and disclosure by companies are the two big challenges ahead.