Saudi bourse will open to foreign investors from June

The rules will come into effect on June 1, with QFIs able to buy and sell blue-chip stocks such as Sabic, Al Rajhi Bank and NCB from June 15.

Saudi Arabia’s regulator has fired the starting gun for the long-awaited opening up of its 2 trillion riyals (Dh1.95tn) stock market to outsiders.

The Capital Markets Authority announced on Thursday that it would publish the final rules for foreign investment in Saudi equities on May 4.

The rules will come into effect on June 1, with qualified foreign investors (QFIs) able to buy and sell blue-chip stocks such as Sabic, and NCB from June 15.

The move, first announced by the CMA last July, has been long awaited by international institutional investors, who have long sought to buy into the region’s largest and most liquid stock market.

“The CMA has delivered on their promises to open up the market in the first half of the year,” said Rami Sidani, the head of frontiers investments at the asset manager Schroders.

“It’s a very positive development for Saudi Arabia and the entire region. It’s the latest step in the liberalisation of the region’s markets that should see an increase in foreign investment across the Middle East.”

Currently, investors from outside the GCC that want to invest in Saudi equities are only able to do so via swap arrangements and equity traded funds, making them inaccessible to large funds such as Fidelity Investments.

Draft regulations released by the CMA in August stipulate that QFIs will not be able to own more than 5 per cent of an individual company listed on the Saudi bourse, with foreign investors unable to own more than 20 per cent of a listed entity.

The 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 $5bn of assets under management.

The implementation of the new rules may pave the way for its classification as an emerging market by the index compiler MSCI, Sebastien Lieblich, the executive director of the index research team at MSCI, said last July.

“The opening up will help satisfy the appetite for international investors in terms of allocation into the region, in particularly the oil and banking sectors,” said Marwan Shurrab, the head of trading at Vision Investments & Holdings in Dubai.

“It will encourage them to start allocating into regional markets on a more stable level.”

While some have speculated that the opening up of Saudi Arabia would drain foreign liquidity from the UAE and other regional markets, the opposite was true, according to Muhammad Shabbir, the head of equity funds and portfolios at Rasmala Investment Bank in Dubai.

“When Qatar and the UAE were upgraded to emerging market status by MSCI, there was increased interest in Saudi from foreign investors as well,” he said.

“This time around when Saudi’s opening up to international institutional money, we’ll see the UAE and Qatari markets benefit as well.”

“Foreign investors have been largely absent from the UAE and the region so far this year, so the opening up of Saudi may well bring them back.”

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