Saudi Arabia’s stock exchange hit a new high yesterday after the publication of draft regulations for the long-awaited opening of the market to international investors.
The Tadawul All Share Index yesterday gained 1.6 per cent at 10,903.04, the index’s highest close in more than six years, responding positively to draft regulations published on Thursday by the country’s Capital Market Authority, relating to the licensing of qualified financial investors (QFIs).
Under the terms of the draft regulations, QFIs will not be able to own more than 5 per cent of an individual company listed on the bourse, with foreign investors unable to own more than 20 per cent of a listed entity.
The CMA’s regulations stipulate that QFIs will be able to own a maximum of 10 per cent of issued shares in the market, limited to 10 per cent of market value.
QFIs must be banks, brokerage or securities firms, fund managers or insurance companies with a minimum of five years of relevant experience, and with a minimum of US$5 billion of assets under management.
Such limits are consistent with the CMA’s former pronouncements of intending to make any opening of the market a gradual one, according to Bassel Khatoun, Franklin Templeton’s head of Mena equities.
“In their current form these rules may temper foreign inflows, resulting in a soft opening of the Tadawul,” said Mr Khatoun. “This is in line with the CMA’s stated intention of having a ‘gradual and orderly’ market opening. We would expect that these restrictions are relaxed over time.”
Saudi Arabia’s cabinet last month gave the go-ahead for the easing of foreign ownership restrictions in the kingdom, sending shares soaring.
Foreign participation in the Saudi stock market is limited to swap agreements, with the combined holdings of foreign shareholders accounting for just 1.1 per cent of current market capitalisation, according to Mr Khatoun.
The relaxation of foreign ownership, scheduled to come into effect early next year, has lead to increasing speculation that Saudi Arabia will follow in the footsteps of the UAE and Qatar and will be upgraded to MSCI's Emerging Markets Index.
Saudi Arabia’s inclusion in the index would have a positive impact on UAE and Qatari entities as well, he said.
“It’s not going to be a zero-sum game between the countries of the region. If and when Saudi Arabia ascends to emerging market status its likely share will come out of higher or heavier-weighted countries, like Korea, China, Taiwan and Brazil, rather than other markets in the Middle East.”
Increased international interest in Saudi equities would lead to a broader focus on the region as a whole, with UAE and Qatari companies set to benefit from the spillover effect from investor flows, he predicted.
jeverington@thenational.ae
Follow The National's Business section on Twitter