Saudi lets foreigners buy listed shares

Saudi Arabia will allow foreigners to buy shares through licensed intermediaries, a major step towards opening the largest Arab bourses to foreign capital.

RIYADH // Saudi Arabia will allow foreigners to buy shares listed on its stock market through licensed intermediaries, a major step towards opening the largest Arab bourses to foreign capital. The stock market, Tadawul, has been the least open among Gulf bourses to foreign investors, up until now giving foreigners access to stocks only through select funds.

As part of plans to diversify the market's investor base, the Capital Markets Authority (CMA) said yesterday that foreign investors were now entitled to buy shares through certain licensed Saudi investors, who would be the legal owners of the shares. Under the measure, potential foreign investors would be entitled to returns related to their share purchases and must take on all of the economic exposure, the CMA said on the bourse's website.

"The authority... approved that licensed individuals sign swap agreements with non-resident foreigners - institutional or individual - for the purpose of transferring the economic benefits of shares in Saudi listed companies to those persons," the authority said. The move is part of "continued efforts of the authority to develop the financial market", the CMA added, without saying when the decision would take effect.

The announcement comes less than a week after the exchange began naming investors with stakes of five per cent or more to boost transparency, a move that encouraged an eight-day rally. Abdulhamid al Amri, a member of the Saudi Economic Association think tank, said the measure would boost the bourse without exposing it to "hot money". "This measure will definitely have a positive impact on the Saudi market, which should last throughout Ramadan," he said, referring to Islam's holy month, which coincides with September this year. "The measure was designed in a way that would prevent the entry of hot money by tying the legal ownership to local investors."

CMA has yet to publish the measure, which sets rules governing transactions under swap agreements. The benchmark index, still down more than 23 per cent this year, is dominated by day traders and has been trying to improve transparency and gain more institutional investors since a market crash in 2006. "This is one step away from opening up the market completely to foreign investors," said John Sfakianakis, the chief economist at SABB bank, HSBC's Saudi affiliate. "This is a very sizeable step. A client in London, Paris or New York has a way to get invested in the local market through licensed stock brokers."

Foreigners would be responsible for fully financing the share purchases through the intermediary and taking on any credit exposure, he added. The market regulator said last December that the kingdom would gradually begin allowing foreign money in through licensed firms. That month, HSBC said it was launching two indexes and associate funds to give global investors exposure to firms including Saudi Basic Industries, the world's biggest chemicals firm by market value.

Morgan Stanley will be allowed to set up a fund to invest in Saudi equities, the regulator said this month. Certain stocks in Saudi Arabia are trading at cheap multiples, traders said. Sabic, the largest stock in the Arab world, rose 1.63 per cent to 125 Saudi riyals (Dh122.4) yesterday, a 68 per cent discount to HSBC's target price of 210 riyals. "There are some companies that are very, very well priced. These could see a rally," said Mr Sfakianakis.

* Reuters