Tadawul, Saudi Arabia’s stock market on Monday 15th of June opened to foreign investors. This is the first time the Tadawul has opened to foreign direct investment. Smaller regional exchanges such as the Abu Dhabi Securities Exchanges (ADX), valued at US$123 billion, and the Qatar Stock Exchange (QSE), which at US$174 billion is Tadawul’s closest rival in the Middle East in terms of market cap, are all open to foreign investment.
For years, Tadawul has been open to foreign direct investment from Gulf countries, other foreign investors have only been able to own shares traded on the exchange since 2008, even then only indirectly via swaps and exchange-traded funds (ETFs). The move to liberalize the exchange for foreign direct investment has been touted for years but has been beset by delays, mainly due to the concerns of local investors over the potential for aggressive foreign ownership of domestic firms. Under the new regulations, foreign institutions will not be able to own more than 5 per cent of shares in any individual listed company.
Foreign investors as a whole also cannot own more than 20 per cent of shares on all the market’s listed companies. Saudi Arabia wants to reduce volatility through encouraging investment by institutions in favor of individuals. This move should improve the market’s regulation and lead to higher standards of corporate governance in Saudi companies. The benchmark index Tadawul All-Share Index (TASI) fell 0.9 per cent to 9561.70 points at close on Monday and 0.17 per cent on Tuesday to reach 9,544.51 points. But the exchange’s size, liquidity and diversity of companies listed should be attractive to foreign investors looking to capitalize on its rapid growth in recent years.
Since regulation of the market was tightened with the creation of the CMA in 2003, the exchange has grown rapidly. In the past three years alone, it has seen a 72 per cent rise in its market cap, up to $585 billion in 2015 from $341 billion in 2012.
Stock market analysts expect the move to draw in between US$ 20 to 40 billion in foreign investment in the next few years. It should also speed up the Tadawul’s inclusion on MSCI’s emerging markets index, regarded as a benchmark by emerging market-focused fund managers. Stock market traders expected market activity from foreign institutions to eventually pick up as investors study their options and become more confident about the market’s long-term prospects. It is worth mentioning that Tadawul is considered the Middle East’s largest bourse with a market capitalization of US$585 billion.
