Saudi Arabia plans to allow foreigners direct access to its stock market, one of the world’s most restricted, from June 15.
The Riyadh-based Capital Market Authority will publish the rules on May 4, which will be enforced on June 1, according to a statement on its website.
The world’s biggest oil exporter is giving foreigners access to the stock market as the country pursues a $130 billion spending plan to boost non-energy industries. Income from oil accounted for almost 90 percent of Saudi Arabia’s revenue last year. Investors from outside the six-nation Gulf Cooperation Council currently access shares in the kingdom through equity swaps and exchange-traded funds.
“In the near-term foreign flows will remain far smaller than domestic ones given foreign ownership ceilings,” Hasnain Malik, the head of frontier-markets equity strategy at Exotix Partners LLP in Dubai, said by phone today. “The real avalanche of foreign capital likely starts once a potential path to accession to mainstream indices such as MSCI Emerging Markets becomes clear and that may not be until at least late 2016.”
Saudi Arabia may be added to MSCI Inc.’s emerging markets index by 2017 at the earliest, accounting for about 4 percent of the gauge, Sebastien Lieblich, executive director at MSCI Index Research, said in July.
The CMA may cap foreign ownership of a single stock to 49 percent, it said in plans posted on its website in August. It may also set a 5 percent limit for qualified foreign investors, or QFIs, in a single stock, and a 20 percent ceiling for QFIs and approved QFI clients combined, it said.
A weight on the MSCI index of between 2 percent to 4 percent “could translate into $15 billion to $30 billion of inflows from foreign institutions, or about one to two months’ worth of trading activity,” Malik said.
The nation’s Tadawul All Share Index has risen 11 percent this year, the best performer among seven major gauges in the six-nation GCC. The kingdom’s $530 billion stock market is the region’s largest.
“Initially, you’ll see additional liquidity being injected mainly by local investors,” John Sfakianakis, the Riyadh-based director of the Middle East region at London-based investment manager Ashmore Group Plc., said by e-mail. “International investors would come in multiple phases and would provide positive momentum over the short to medium term. Overall this is very positive as it’s what international and local investors have been waiting for.”