Saudi Arabia May Allow Direct Foreign Access to Markets

Saudi Arabia which is home to the biggest bourse in the Arabian region, is seeking to boost the institutional investments in its stock market with total worth of $387 billion as the top OPEC producer weighs plans for allowing the foreign investors to buy shares directly. According to the Chairman of Capital Market Authority, Mohammed Al-Sheikh, foreign investments are definitely welcome, but they don’t play a crucial role to liquidity, at least for the time being. Mohammed added that currently the market is being dominated largely by the individual investors. Mohammed commented further that the financial market of Saudi Arabia does not require any liquidity at this point of time. However, the market will probably need some professional foreign investors who will be able to bring a lot of value to the financial market as they are not only knowledgeable, but experienced as well. Mohammed feels that if the Saudi market is opened to the foreign investors, that will be a good thing for the country, however, the decision has to be taken gradually and only after a complete study.

Incidentally, many lenders such as HSBC Holdings and Deutsche Bank AG have already predicted that the market of Saudi Arabia may soon be opened to the foreign investors and a decision on this regard can be taken within the start of 2014. As soon as these predictions were released, the demand for assets in the largest Arab economy increased manifold. According to the Founder of the Hedge Fund Passport Capital LLC, John Burbank, if this move is taken, the same can be responsible to attract as much as $30 billion of inflows.

Currently, only the non-resident foreigners outside the 6-nation Gulf Cooperation Council are allowed to invest through the exchange traded funds and equity swaps. Incidentally, the benchmark stock gauge of Saudi Arabia, Tadawul All Share Index has jumped up by 5.6% in 2013.

The Saudi Arabian Government has pursued a spending plan of more than $500 billion to boost the non-oil economy. MSCI, on 2013 resumed coverage on Saudi and it stated that the country can even be included in the frontier if it gives the foreign investors direct access to the market.

Incidentally, on last February, Al-Sheikh became the new helm of the regulator. Al-Sheikh used to work as an executive representing Saudi Arabia at the World Bank.