As a way to diversify its economy beyond oil production, Saudi Arabia opened its $565 billion stock market to foreigners on Monday. Besides being the biggest stock market in the Middle East, it’s bigger than all of the Gulf states’ stock markets combined.
Previously stocks were restricted to the ownership of Saudis and citizens of other nearby Gulf states, and foreigners could only buy stocks indirectly through financial vehicles such as swaps. The new regulation was first revealed towards the end of 2014. After the publishing of the final regulation concerning foreign direct investment on May 4, the regulation was brought into practice today, June 15, 2015.
Saudi Arabia is home to one of the world’s most liquid stock markets while having the most active public offerings (IPO) market in the region. The country’s stock exchange, Tadawul, has 169 listed companies spanning 15 sectors and generally consists of well-capitalised global companies such as petrochemicals conglomerate Sabic and the Islamic banking group Al Rajhi.
However, on the first day that the market opened to direct foreign investment there were no significant fund inflows from abroad to the stock market. After increasing around 0.5 percent in its opening, the index slipped 0.3 percent as most blue chips in MSCI’s provisional Saudi benchmark fell.
Although the Saudi market regulator said foreign institutions can buy stocks directly from June 15, the award of any licences permitting specific institutions to do so has not been announced so far. At the same time, it is still unclear when the first batch of licenses will be granted.