DUBAI: Saudi Arabia’s stock market regulator proposed rules yesterday for opening the $580bn market to direct investment by foreign institutions, including 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. The Capital Market Authority published the draft on its website.
The Saudi market is the biggest in the Arab world and one of the last major bourses to open up, so the reform is attracting massive foreign interest. Fund managers have estimated the market could draw $50bn or more of new foreign money in coming years if it is included in global equity indexes.
“A lot of foreign smart money will want to enter the Saudi market given that other markets might be reaching their upper limits going forward,” said John Sfakianakis, a prominent Riyadh-based investment strategist.
He noted that the Saudi market was more liquid and diverse than markets in neighbouring Gulf states such as Dubai.
Authorities in the world’s biggest oil exporter, keen to use the stock market to diversify the economy beyond oil and create jobs, considered opening the market for years. But they held off, concerned about the risk of destabilising stock prices.
Currently, foreigners other than residents of Saudi Arabia and citizens of neighbouring Gulf states can only invest in the market in indirect ways such as swaps and exchange-traded funds.
The Capital Market Authority (CMA) said in July it would open the market in the first half of 2015, causing a surge in the stock index which is up 10 percent since then.
It is expected to issue a final version of its rules after a three-month consultation period. The draft provides for further curbs to be placed on foreign ownership of individual stocks by “supervisory or regulatory authorities”.
For example, fund managers believe foreigners may not be allowed to hold shares in certain real-estate developers with operations in the holy cities of Mecca and Medina, to ensure that non-Muslim investors do not own assets there.
Ali Adou, portfolio manager at The National Investor in Abu Dhabi, said he expected the Saudi market eventually to be included in MSCI’s influential Emerging Market Index, but that the proposed foreign ownership limits might reduce its weighting within that index. “The CMA is taking a conservative approach,” he said.
The draft rules are similar to those used by some Asian markets including China as it opened up over a decade ago. The draft says foreign institutions will have to qualify for permission to invest. For example, they would usually need to have at least $5 billion of assets under management, and investment experience of no less than five years.
Reuters
