15 June 2015
JEDDAH: The investment opportunity in Saudi Arabia is exciting, says a top Riyadh-based economist.
His remarks came ahead of the Saudi stock market's (Tadawul) opening to direct foreign investment on Monday.
"Opportunities are frontloaded and much is anticipated in terms of flows of foreign funds from abroad," said John Sfakianakis, Middle East director at Ashmore Group.
The opening of the Saudi market will widen the foreign investor base, which is currently less than two percent of total holdings.
The Tadawul All-Share Index (TASI) climbed 1.3 percent, buoyed by blue chips, which are seen as most likely to be targeted by foreign investors.
From Monday, qualified foreign investors with licenses from the Capital Market Authority (CMA) will be able to buy local stocks, after previously being limited to indirect channels such as swaps.
Sachin Kerur, head of the Middle East region for law firm Pinsent Masons, commented: "The flow of international funds into the Saudi market could potentially be significant. This is particularly given the world-class Saudi companies that exist with healthy cash balances and exposure to attractive markets such as oil, petrochemicals, food and beverages, and general household items."
Mushtaq Ahmed, senior financial analyst at Zugaibi & Kabbani Financial Consultants, said: "Other than capital inflow or liquidity, the opening of stock market to foreigners will have a positive impact on local investors as well. There will be a transfer of knowledge and global expertise to the local investors, which will raise their level of professionalism."
Ahmed added: "Institutional investments would contribute to market stability gradually. Investors can expect a significant growth of benchmark TASI on the first day of opening." Saudi Basic Industries Corporation (SABIC), the world's top petrochemicals manufacturer by sales, was a major contributor to the market's gains Sunday with a 2.3 percent increase.
TASI has risen 16 percent in 2015, the most in the Middle East. The bourse is bigger than all the major stock markets in the GCC combined.
Jarmo T. Kotilaine, a regional analyst, said: "I do not see this as a major game changer in the short term. I think the markets have priced in much of the expected impact."
He said: "In general, foreign institutions are likely to show more interest in larger, more liquid companies. However, the short-term impact on prices need not be different as many of them may build their positions tactically, over time."
Kotilaine said it is also important to recognize that the opening story is not happening in isolation.
"Investors behavior will be informed by factors such as the oil price and expectations of US monetary policy. This has tended to have significant implications on emerging market exposure in recent months," he added.
Hootan Yazhari, head of MENA and global frontier markets research at Bank of America Merrill Lynch, said: "The opening of the Saudi market has brought Saudi Arabia's inclusion in the MSCI emerging markets index a step closer (by mid-2017). Until now, given the inability of foreign investors to invest directly, the Kingdom has only been included in standalone indices. Once included, we see Saudi Arabia accounting for only 1.7 percent of the MSCI EM index owing to foreign ownership limits, although this should be sufficient to attract $ 13.7 billion of active and passive flows in to the market."
The Saudi IPO market has thus far been used as a mechanism for transferring wealth to its citizens.
New issues tend to be attractively priced, with the last five major IPOs having traded up approximately 50 percent on average in their first week of trading. However, the Saudi IPO market has thus far been inaccessible by foreign investors.
"Following the opening of the Saudi market, this is set to change as foreign investors will be allowed to participate in IPOs so long as the issuer permits it in their listing terms. That is to say, it will be determined on a case by case basis as to whether foreign investors will be permitted to participate in IPOs," Yazhari said.
JEDDAH: The investment opportunity in Saudi Arabia is exciting, says a top Riyadh-based economist.
His remarks came ahead of the Saudi stock market's (Tadawul) opening to direct foreign investment on Monday.
"Opportunities are frontloaded and much is anticipated in terms of flows of foreign funds from abroad," said John Sfakianakis, Middle East director at Ashmore Group.
The opening of the Saudi market will widen the foreign investor base, which is currently less than two percent of total holdings.
The Tadawul All-Share Index (TASI) climbed 1.3 percent, buoyed by blue chips, which are seen as most likely to be targeted by foreign investors.
From Monday, qualified foreign investors with licenses from the Capital Market Authority (CMA) will be able to buy local stocks, after previously being limited to indirect channels such as swaps.
Sachin Kerur, head of the Middle East region for law firm Pinsent Masons, commented: "The flow of international funds into the Saudi market could potentially be significant. This is particularly given the world-class Saudi companies that exist with healthy cash balances and exposure to attractive markets such as oil, petrochemicals, food and beverages, and general household items."
Mushtaq Ahmed, senior financial analyst at Zugaibi & Kabbani Financial Consultants, said: "Other than capital inflow or liquidity, the opening of stock market to foreigners will have a positive impact on local investors as well. There will be a transfer of knowledge and global expertise to the local investors, which will raise their level of professionalism."
Ahmed added: "Institutional investments would contribute to market stability gradually. Investors can expect a significant growth of benchmark TASI on the first day of opening." Saudi Basic Industries Corporation (SABIC), the world's top petrochemicals manufacturer by sales, was a major contributor to the market's gains Sunday with a 2.3 percent increase.
TASI has risen 16 percent in 2015, the most in the Middle East. The bourse is bigger than all the major stock markets in the GCC combined.
Jarmo T. Kotilaine, a regional analyst, said: "I do not see this as a major game changer in the short term. I think the markets have priced in much of the expected impact."
He said: "In general, foreign institutions are likely to show more interest in larger, more liquid companies. However, the short-term impact on prices need not be different as many of them may build their positions tactically, over time."
Kotilaine said it is also important to recognize that the opening story is not happening in isolation.
"Investors behavior will be informed by factors such as the oil price and expectations of US monetary policy. This has tended to have significant implications on emerging market exposure in recent months," he added.
Hootan Yazhari, head of MENA and global frontier markets research at Bank of America Merrill Lynch, said: "The opening of the Saudi market has brought Saudi Arabia's inclusion in the MSCI emerging markets index a step closer (by mid-2017). Until now, given the inability of foreign investors to invest directly, the Kingdom has only been included in standalone indices. Once included, we see Saudi Arabia accounting for only 1.7 percent of the MSCI EM index owing to foreign ownership limits, although this should be sufficient to attract $ 13.7 billion of active and passive flows in to the market."
The Saudi IPO market has thus far been used as a mechanism for transferring wealth to its citizens.
New issues tend to be attractively priced, with the last five major IPOs having traded up approximately 50 percent on average in their first week of trading. However, the Saudi IPO market has thus far been inaccessible by foreign investors.
"Following the opening of the Saudi market, this is set to change as foreign investors will be allowed to participate in IPOs so long as the issuer permits it in their listing terms. That is to say, it will be determined on a case by case basis as to whether foreign investors will be permitted to participate in IPOs," Yazhari said.
© Arab News 2015
