Friday 15 March 2013

A rising number of bankers are predicting that the Kingdom will allow direct overseas investment in its stock market by early 2014. "The opening of the Saudi stock market to foreign investors will not only be very positive for the stock market but for the whole Saudi economy," says Ali Al-Tawati, professor of economics and finance at the University of Business and Technology. He was reacting to a recent statement by top HSBC official that steps are being taken at the appropriate places to open the market up. "There's tremendous appetite," Simon Cooper, CEO of HSBC's Middle East business, was quoted as saying in a Bloomberg report.

Commenting on Cooper's remarks, Al-Tawati added: "I think the structure in the Saudi stock market is not ready yet for the international investors." He said: "The bourse needs much of the transparency which is not available now for the stock market itself and for the listed companies." Tamer El Zayat, senior economist at the National Commercial Bank (NCB), however, suggested that the Capital Market Authority should adopt smart regulatory steps at the start, allowing renowned institutional investors that have long-term investment durations. He also said: "Opening up will not only secure strong portfolio inflows, but will act as a balancing force against intraday trading practices and will provide much needed depth in investment horizons." Tamer said: "The fact that most countries are easing up capital controls is a testimony toward this direction." But he said concerns about hot or fast money must not derail the opening up of the exchange. Jarmo T. Kotilaine, a regional analyst, pointed out that Tadawul had matured significantly over time and now constitutes a sizable, diverse, and well-regulated market.

He said: "The range of investors will initially exclude those institutions that base their decisions on benchmark indexes. Liberalization will create the preconditions for Tadawul's inclusion in such indexes but the completion of the process will likely require some time." Kotilaine also said: "Whatever the impact on values and volumes in the short term, greater openness should contribute to the ongoing institutionalization of the market and diminished volatility." In the Bloomberg report, Cooper said: "When the market opens up and foreigners can buy shares then you get liquidity coming and the market grows."

"Saudi Arabia has got a very strong regulatory environment -- that means they do things properly and take their time," Copper added. "I would say 12 to 18 months. Steps are being taken at the appropriate places to open the market up," he was quoted as saying in the report. John Burbank, founder of $ 3.7 billion hedge fund Passport Capital LLC, said earlier that the market may attract as much as $ 30 billion of inflows and could open within a year. In February, Custodian of the Two Holy Mosques King Abdullah replaced the head of the Capital Market Authority with Mohammad Al Al-Sheikh, who was representing Saudi Arabia at the World Bank. The NCB said in a recent report that Saudi equity market rebounded off 2011's contraction and recorded a gain of 6 percent during 2012 on the back of strong fundamentals and healthy investor appetite.

However, it said Tadawul continued to be heavily influenced by global economic developments, which easily swayed stock prices either way. The Tadawul All-Share Index (TASI) is up more than 3 percent so far this year. NCB said global turmoil as well as the Arab spring weighed negatively on the local market in 2012, but with a gradual return to a semblance of normalcy in the US, euro zone, and China, Tadawul is expected to run at full throttle this year. TASI meanwhile surged 38.9 points or 0.56 percent on Wednesday to 7,025.37 points. Market breadth was largely positive, as out of 157 stocks traded only 21 could not manage for gains, according to an update released by GulfBase.com. Insurance companies were the significant winners among all Saudi stocks.

© Arab News 2013