Regional markets could ease their foreign ownership restrictions and compete for liquidity when Saudi Arabia's equity market opens up to foreign investors, stockbrokers from the Emirates say.
Their comments came after Mohammad Al Sheikh, the newly appointed head of Saudi Arabia's capital markets regulator, yesterday said government entities were working on a regulatory framework to allow direct foreign ownership of stocks.
"It will add liquidity to the Saudi market," said Fathi Ben Grira, the chief executive of Mena Corp, an Abu Dhabi investment company. "When the GCC see this effect they will be tempted to open their market, so there will be a domino effect."
Mohammed Ali Yasin, the managing director at National Bank of Abu Dhabi's brokerage arm, added that should Saudi Arabia make such a move many people would be afraid that money would leave Qatar and the UAE. But that is not likely to happen, he said, pointing out that "local Saudi investors may take this event as an opportunity to take the markets to a higher level, generating volumes, in a bid to sell to investors at higher prices".
Saudi Arabia's stock market, the region's most liquid with more than US$1.3 billion traded daily, has been considering opening up to foreign investors for several years. Currently, foreigners have limited opportunities to invest through equity swaps and exchange-traded funds. About 90 per cent of current market activity is dominated by retail investors.
"While foreign investments are welcome, they're not crucial to liquidity," Mr Al Sheikh, the chairman of the Capital Market Authority (CMA), said on the sidelines of the Euromoney conference in Riyadh yesterday. "There are a number of government entities, including CMA, that are looking at that [direct foreign investment]. We're finalising a regulatory framework with certain parameters."
Markets in the UAE and Qatar have long permitted share ownership by foreigners, but restriction limits remain on popular stocks, while select companies' shares such as Etisalat can be traded only by local investors.
The statements confirm speculation by institutional investors that the kingdom is looking at broadening its spectrum of investors.
John Burbank, the founder of the $3.7bn San Francisco-based hedge fund Passport Capital, was quoted as telling Bloomberg in February that foreign direct investment in Saudi Arabia's equity market could happen in the next year and may attract as much as $30bn of inflows.
Jamal Al Kishi, the chief executive of Deutsche Securities Saudi Arabia, said in the same month that he was "convinced" the market would open up to foreign investment and was "optimistic" it would be soon.
Saudi Arabia's bourse has a market capitalisation of more than $383bn, with more than 150 companies listed.
"It's not going to drain liquidity from the UAE, but there will be a competition for liquidity among regional markets," Mr Ben Grira said. "GCC investors can already invest in Saudi Arabia. Fund managers in London who will go to Saudi are not in the UAE for the moment. It's money in London that will be allocated in KSA."
halsayegh@thenational.ae
* with agencies
A MINECRAFT MOVIE
Director: Jared Hess
Starring: Jack Black, Jennifer Coolidge, Jason Momoa
Rating: 3/5
Marathon results
Men:
1. Titus Ekiru(KEN) 2:06:13
2. Alphonce Simbu(TAN) 2:07:50
3. Reuben Kipyego(KEN) 2:08:25
4. Abel Kirui(KEN) 2:08:46
5. Felix Kemutai(KEN) 2:10:48
Women:
1. Judith Korir(KEN) 2:22:30
2. Eunice Chumba(BHR) 2:26:01
3. Immaculate Chemutai(UGA) 2:28:30
4. Abebech Bekele(ETH) 2:29:43
5. Aleksandra Morozova(RUS) 2:33:01
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
SPECS
%3Cp%3E%3Cstrong%3EEngine%3C%2Fstrong%3E%3A%202-litre%20direct%20injection%20turbo%20%0D%3Cbr%3E%3Cstrong%3ETransmission%3C%2Fstrong%3E%3A%207-speed%20automatic%20%0D%3Cbr%3E%3Cstrong%3EPower%3C%2Fstrong%3E%3A%20261hp%20%0D%3Cbr%3E%3Cstrong%3ETorque%3C%2Fstrong%3E%3A%20400Nm%20%0D%3Cbr%3E%3Cstrong%3EPrice%3C%2Fstrong%3E%3A%20From%20Dh134%2C999%26nbsp%3B%3C%2Fp%3E%0A
