saudia arabia

Tadawul, Saudi Arabia’s stock exchange, opened up to foreign investors. The Tadawul is not only the largest stock market in the Middle East with a total market capitalization of over US$550 billion but is one of the largest of the emerging market exchanges.

Foreign investors interested to trade on the Tadawul must fi rst register with the Saudi Capital Market Authority (SCMA). At this time only the larger financial institutions with at least US$5 billion in assets and fi ve years of investment experience will be provided access. Even then, foreign investors will not be permitted to own or control more than 49% of any Tadawul-listed company.

So clearly, the SCMA is targeting established institutional investors for the Saudi market. This will help promote market stability and reduce volatility as the SCMA stated last month that it hopes to “…raise their performance by improving the level of transparency, financial information disclosure and governance practices”.

Saudi Arabia’s Tadawul All-Share Index (TASI), since being made accessible to foreign investors, has made litt le progress as global markets have been ratt led with the Greek debt crisis and the collapse of the Chinese stock markets. Despite the global pressures, the TASI continues to be one of the best performing indices in the world with a solid 13.2% return year to date.

The relatively strong performance of the TASI may help the Saudi market attract foreign investors. However, investors will likely be cautious given the depressed petroleum prices which will continue to put a strain on regional economic growth. In addition, the civil unrest and Saudi military action in neighboring Yemen adds increased geopolitical risk to Saudi markets.

Several firms including the world’s largest asset manager, Blackrock, are already planning for a Saudi Arabian exchange-traded fund to be listed either in Europe or the US. This would enable smaller financial institutions and retail investors to participate in the Saudi markets. It is also just a matter of time before the MSCI benchmarks add Saudi Arabia to its emerging market indices and direct billions of dollars in investment assets to the market.

By Suhail Ahmad, published in the Islamic Finance News Issue 29, Volume 12 on July 22, 2015