[2007-10-10]  Saudi Arabia opens equity market to neighboring states
It is a notoriously closed country, but Saudi Arabia has taken a big step towards opening its equity markets by allowing citizens of neighboring Gulf Cooperation Council states to buy and sell shares listed on its stock market for the first time.

Nationals from the five other GCC states – Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates – may trade shares listed on the Tadawul, home to some of the region’s largest capitalized companies. Investors from GCC nations previously had limited access to stocks on the Tadawul but the move, initiated two weeks ago by Saudi regulator, the Capital Markets Authority, is being regarded as a tentative first step towards liberalization of the Middle East’s largest stock market to foreign investors.

Khaled Masri, a partner at Rasmala Investment in Dubai, said: “As asset managers, we see this as a positive move by the Saudi regulator but we hope it will take another step and eventually open the market to all investors.”

Some specialists, such as Henry Azzam, chief executive, Middle East and North Africa, of Deutsche Bank and one of the region’s top economists, said the move could have far-reaching implications for Gulf nations. He said: “This is a hugely interesting development, because we have the largest stock market in the Gulf opening and, with other markets doing the same, this could lead to the creation of a common market in the region.”

This is a view held by the region’s newest stock exchange, Dubai International Financial Exchange in the UAE. A spokesman said: “Dubai believes there is a trend towards consolidation and harmonization of capital markets in the region as these young markets mature. This includes expanding the range of investment opportunities across national boundaries, which will enable the markets to develop further as well as benefit investors.”

The sudden decision by the Saudi regulator to relax its stock market rules may have caught many by surprise but investors, such as Masri, are keen to see it go further.

Masri said: “The CMA’s decision has confirmed the liberalization trend in the region. It is a good step but it’s not a Big Bang situation. We need to see more clarification and more portfolio inflows in the Saudi market.”

He said for weeks there were market rumors that the CMA was planning a shake-up but the speed with which it happened was not in its usual style. Masri said: “The CMA is a fairly new regulator but we are pleased to see the way it is responding to the market’s needs.”

There is confusion, though, over what constitutes a GCC investor. Masri wants the CMA to clarify if a fund that is domiciled in, say, Bahrain or Qatar qualifies. He said: “As asset managers, we need markets in which we can trade with ease. We need to know if funds domiciled in the GCC, but not necessarily invested in by regional entities, would qualify. We often have to go through other funds that are operationally difficult, so we need to see how they respond to this question.”

However, Azzam said he believed offshore funds domiciled in the region would not be permitted on to the Tadawul, and only those with regionally based investors would be allowed access in the round of changes.

Shares traded on the Saudi exchange include Saudi Basic Industries Corporation, one of the world’s leading petrochemicals, steel and plastics conglomerates, with a market capitalization of 318.8bn Saudi riyals (€60.4bn). However, the nation’s highly capitalized banks are also available for foreigners to trade.

Masri said the significance lay in the fact that all GCC investors may trade any Saudi stock, including highly valued bank shares, which make up a large percentage of the market. He said: “GCC nationals can invest in 100% of the Saudi market, so this is a big change. Saudi’s banks are extremely wealthy and they will be highly desirable among investors in the region.”

All new Saudi share issues remain off limits to foreigners, though, said Masri: “Saudis are among the region’s most prolific investors and they are large participants in initial public offerings on other GCC exchanges, but it’s a one-way street. They don’t need foreigners to make a Saudi share issue a success and that’s unlikely to change in the near term.”


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