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By Kathleen Caulderwood - Saudi Arabia’s $530 million stock exchange will become one of the last in the world to open itself up to foreign investment next year. But the largest economy in the Middle East, with attractive blue-chip offerings and strong growth, is doing so carefully, with major limitations on foreigners.
“The market will be open to eligible foreign financial institutions to invest in listed shares during the first half of 2015, with God’s permission,” the Capital Market Authority said in a statement on Tuesday.
Currently, the Saudi market is the second-largest in the world that’s closed to foreigners, topped only by China, and it's excluded from major global indexes like the MSCI.
Though foreign investors aren’t technically allowed to invest directly, they’ve been able to buy Saudi stock through swaps with international banks and exchange-traded funds, which is cumbersome.
“We already invest in Saudi Arabia in our frontier fund, though we have to do it through things like participatory notes, so if they open the market up it will simplify the process,” said Allan Conway, head of emerging market equities at Schroder Investment Management Ltd., to the Wall Street Journal.
However, the new open market will have restrictions on foreign stockholders. For one thing, no institution can own more than five percent of a Saudi firm, and all foreigners combined can’t own more than a fifth.
Under the new rules, foreign investors will also need a license and have quotas for their new Saudi market investments. A senior Saudi banker told Reuters that he only expected the market to award ten licenses at first, with more following later and that one set of proposals requires firms should have at least $5 billion in assets.
A strong economy is boosting the oil giant’s reputation among investors. On Monday the International Monetary Fund raise its forecasts for Saudi growth to 4.6 percent this year.
Blue-chip firms such as Saudi Basic Industries Corp., one of the largest petrochemical firms in the world, and National Commercial Bank, which is planning a $4 or $5 billion public offering later this year, are another major draw.