HSBC Holdings Plc, the biggest underwriter of bond sales in Saudi Arabia last year, sees the country’s equity market opening to foreigners as early as next year amid rising demand for assets in the largest Arab economy.
“There’s tremendous appetite,” Simon Cooper, chief executive officer of London-based HSBC’s Middle East business, said in an interview. “I’d say 12 to 18 months. Steps are being taken at the appropriate places to open the market up.”
Cooper, head of HSBC in the Middle East since 2009, joins a rising number of bankers predicting that the biggest oil exporter will allow direct overseas investment in its $387 billion stock market. John Burbank, founder of $3.7 billion hedge fund Passport Capital LLC, said the market may attract as much as $30 billion of inflows and could open within a year.
“I think there’s a strong desire to see it happen from both sides - buyer and seller,” Cooper said at HSBC’s offices in Dubai. “Saudi has got a very strong regulatory environment - that means they do things properly and take their time.”
Saudi Arabia only allows non-resident foreigners outside of the six-nation Gulf Cooperation Council to invest through equity swaps and exchange-traded funds and last year said it would only open the market on a gradual basis.
In February the country replaced the head of its Capital Market Authority with Mohammad Al al-Sheikh, who represents Saudi Arabia at the World Bank. Al al-Sheikh holds a law degree from Harvard University and specializes in mergers and acquisitions, capital markets and project finance, according to the website of U.S. law company Latham & Watkins, which practices in Saudi in association with Al-Sheikh’s law office.
HSBC, which owns 40 percent of Riyadh-based Saudi British Bank, is “well positioned” to capture any foreign flows that may come into the country as the market opens up, Cooper said.
“If you look at economies in the world that are growing that have both the wealth and plans to invest in their economy then Saudi is a logical place to invest in,” he said. “We’re well placed to be part of that growth.”
Banks are boosting their presence in Saudi Arabia as investors seek greater access to the Arab world’s largest bourse and most important economy. Morgan Stanley and Credit Suisse Group AG are shifting their regional equities bases to Riyadh from Dubai, while VTB Capital Plc, the investment banking unit of Russia’s second-largest lender, said in January it may set up an equities business in the Saudi capital.
“That’s where the excitement is,” Cooper said. “When the market opens up and foreigners can buy shares then you get liquidity coming and the market grows.”
Saudi Arabia’s stock exchange has a market capitalization of 1.44 trillion riyals ($384 billion), compared with $129 billion for gauges in the United Arab Emirates and $317 billion for Turkey, according to data compiled by Bloomberg. The benchmark Saudi Tadawul All Share Index includes Saudi Basic Industries Corp., the world’s largest petrochemicals company, as well as Saudi Telecom Co., the Middle East’s largest phone company by revenue and market value.
HSBC is prioritizing Saudi Arabia as one of five key markets in the Middle East and North Africa along with the United Arab Emirates, Egypt, Oman and Qatar. It earned $377 million, or more than a quarter of regional profit, from the country last year, according to its annual report. The bank helped arrange about $7.7 billion in Islamic bonds for Saudi borrowers last year, according to data compiled by Bloomberg.
An opening up of the Saudi market would allow foreigners to tap one of the world’s fastest growing economies. Saudi Arabia’s economy grew 6.8 percent last year after raising its 2013 expenditure target by almost a fifth to a record 820 billion riyals ($219 billion). That beat the 5.6 percent median estimate of 16 analysts compiled by Bloomberg.
Jamal Alkishi, chief executive officer of Deutsche Securities Saudi Arabia, said in a Feb. 11 interview that he was “optimistic” that the Saudi market would open up soon.
The benchmark Tadawul All Share Index rose 0.6 percent at the close in Riyadh yesterday, bringing this year’s gain to 3.3 percent.