Saudi Arabia’s stock market, valued at $585 billion, opened up to direct foreign investment for the first time Monday 15th June 2015, in the hope of an economic boost amid low global oil prices. Here are five key things to be known about this new market opportunity:
1. It’s big: Saudi Arabia has the largest stock market in the Middle East. With the added value also of its stock exchange listed companies which amounts to approximately $570 billion this makes it an even larger market than those of Russia and Mexico.
2. It performs well: As of 15th June Saudi Arabia’s All-Share index — dubbed TASI — has risen by 15% since the start of 2015, outperforming all main U.S. indexes.
3. There are many rules: Saudi Arabia has created many restrictions to filter through to only the largest of investors. Saudi Arabia requires that foreign investors register with its Capital Market Authority (CMA) before they can begin investing. They must reach a “Qualified Foreign Investor” status.
Only financial institutions such as banks, brokerage houses and fund managers will be considered. They must each also have over $5 billion in assets under management and have been in operation for five or more years.
Other regulations are that qualified foreign investors cannot own more than 5 percent of the shares of any company. These investors as a whole cannot own more than 20 percent of shares in the roughly 165 listed companies.
4. Unqualified Investors can still invest: Those who can’t register as “Qualified Foreign Investors” can still invest through a swap agreement program, however they will not have the mandatory shareholder rights and will also not be granted voting rights.
5. Why now?:
There are differing views and statements as to why this change has been implemented.
Moustafa Zantout, a spokesman for Kuwaiti investment company Global Investment House, believes the ultimate goal is to convince index provider MSCI to include Saudi Arabia in its widely tracked emerging market index. MSCI benchmarks are used to help investors access a wide variety of global markets and direct billions of dollars into international stock exchanges.
In May, Tadawul CEO Adel al-Ghamdi, whilst at an economic conference in Riyadh said:
“The point of the framework was never about increasing foreign investment flow into the kingdom. It was always about trying to bring foreign investors to enhance our practices and our market infrastructure,” al-Ghamdi said.
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