Saudi Arabia plans to launch stock market index funds accessible to foreigners by the end of March in a bid to open up the Arab world's biggest bourse, the market regulator's chief, Tuwaijri announced.
Earlier this month Tuwaijri said in a newspaper interview that Saudi Arabia was considering exchange-traded funds (ETFs) without giving a timeframe. Tuwaijri also said that direct foreign investments were not being considered at present, as risky "hot" money would flow in.
In 2008 Saudi Arabia allowed so-called swap agreements between non-resident foreign investors and local intermediaries, permitting indirect foreign ownership on the bourse.
Previously foreigners could only invest in the Saudi stock market – Tadawul, through selected funds.
March 14, 2010
Analysis and Forecast: Decreasing Risk
The announcement by the Saudi official is confirmation that the country is moving towards opening up its market to foreign investors. With the exception of investment funds, only Saudi citizens can currently freely and directly trade in Saudi joint stock companies. GCC citizens are allowed to invest in certain companies and within limited percentages. Non-GCC nationals are not allowed to invest directly in Saudi companies except through closed investment funds.
Foreign ownership of companies and assets in general are very restricted in Saudi, as in most GCC countries. However, other GCC markets have recently opened up all if not all of their stock markets for foreign ownership, with limits of varying degrees. Those stock markets, particularly Dubai, have benefited from foreign trading but the latest global crisis saw massive selling by foreign owners. The Saudi authorities have voiced concern that they are not planning completely opening up their market to prevent “hot money” from causing a bubble, as has been the case in Dubai and Abu Dhabi. The Saudi market is nonetheless the largest in the region and is also the most diversified. It is also presents the greatest attraction to investors, both in the short and longer terms. The opening up of the Saudi stock market to foreign investment will contribute to the country’s efforts to diversification. The Saudi economy is also expected to show much greater resilience to “hot money”, than other GCC markets.
The figure below shows the market capitalization of the GCC markets in US dollars, on 10 March 2010.