RIYADH: Saudi Capital Markets Authority (CMA) is planning to allow in foreign investors from June 2015, a move closely watched by the global fraternity, as the world’s biggest exporter of petroleum gives access to own shares of Saudi Basic Industries and National Commercial Bank.
Saudi Arabia is not looking for liquidity from foreign institutional investors, but expects them to enhance market efficiency and motivate listed companies to improve the levels of transparency, disclosure and governance practices, its regulator said.
Mohammad Al Jadaan, chairman of CMA, expects a lot of benefits from the entry of foreign players into its stock markets. “It is expected that the level of studies, research and evaluation done on the market in general and on the listed companies in particular would be higher which would provide more accurate information and more fair assessments,” Al Jadaan said in a statement.
This would also help to raise the level of the research and studies on the Saudi capital market, he added.
Saudi Arabia is a member of the Group of Twenty (G20) and a member of The International Organisation of Securities Commissions (IOSCO), and was the last country of the major economies of the world that allowed foreign investors’ direct access to its capital market.
The highly specialised foreign investors represented in the Qualified Financial Institutions (QFIs) are expected to contribute in reducing high volatility in prices, Al Jadaan said.
The CMA is expected to publish the rules for foreign institutions on May 4, while rules will be effective June 1, and the QFIs will be allowed to invest in listed shares starting from June 15.
Saudi Arabia’s benchmark Tadawul index is expected to rally to 10,000 levels due to this announcement, though the upside is expected to be limited, Credit Suisse said.
“We expect a very positive market reaction across all sectors. While the announcement is certainly positive, we would be careful to temper our enthusiasm in the short term. The index is likely to cross above the 10,000 mark, but how much it can sustain above this level, and for how long, is difficult to estimate,” Credit Suisse said.
With the index trading at 15.8 times of 2015 Price to Earnings multiple and close to its recent peak, Credit Suisse expects the near-term upside will be limited.
Credit Suisse believes that the CMA will target foreign ownership limits of 49 per cent, though the progression to such levels is likely to be a multi-year process. It estimates that Saudi Arabia would account for around 4 per cent of the MSCI Emerging Market (EM) Index.
“This would make Saudi Arabia a genuine rival to Russia for investors seeking EMEA petrochemicals exposure, with the added benefit of a currency pegged to the US dollar.” Credit Suisse said.
A decision to include Saudi Arabia in the emerging market index remains a medium-term story and the earliest it can optimistically occur is 2017, it added.
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