Saudi Arabia has been given the green light to open up its $531bn stock market to foreign investors.
In an attempt to diversity its oil-centric economy, the Saudi government has granted the regulator Capital Markets Authority the right to allow foreigners to buy and sell shares in the Tadawul stock market.
It comes as the government pursues a $130 billion spending plan to boost non-oil industries. The regulator plans to open it “at a time it sees as appropriate”, but it will be at some point in the first half of 2015.
Until now it has been one of the world's most restricted stock exchanges, limited to domestic investors and foreigners from the six-nation Gulf Cooperation Council.
The move by the Gulf's economic powerhouse has been long awaited by international investors, who recognise the benefits of having greater access to the oil-rich kingdom's bourse.
The kingdom has been expanding at an average rate of 6.4 per cent over the past four years, despite political and financial turmoil that has taken place in surrounding nations in the Middle East. This, combined with greater liquidity and a steadier stream of new company listings than its Gulf neighbours, makes it a particularly attractive prospect for foreign investors.
“The big sleeping giant in the region is Saudi Arabia, a well-capitalized and large market that foreigners couldn’t get access to,” Gary Dugan, the chief investment officer at National Bank of Abu Dhabi PJSC, told Bloomberg. “It’s exciting. It gives greater credibility to the region.”
Through swaps and exchange traded funds, investors have already been able to gain indirect exposure to Saudi stocks, but this cannot compare to the benefits that would be afforded by direct access.
It is thought, therefore, that the opening will attract interest from asset managers worldwide. The move is a “giant step” toward inclusion in MSCI’s emerging-markets index, according to Dugan.
“The move by Saudi Arabia helps accelerate efforts by the Gulf into becoming a more mainstream destination for international investors,” said Ryan Huang, Singapore-based market strategist at IG. “Opening up the market will be a liquidity boost for Saudi corporations.”
The Capital Market Authority announced on its website that it will be publishing rules on the participation of qualified foreign investors later this month.