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Saudi bourse moving closer to foreign access-document
Foreign investors currently access Saudi through swaps.
January 10, 2011 3:55 by Reuters
Saudi Arabia’s stock market committee is moving closer to allowing foreign investors direct market access, a document seen by Reuters showed.
At a Dec. 21 meeting bourse officials asked representatives from regional banks and brokerages to check capabilities for handling foreign accounts, the document showed.
“We might see the markets opening up in the first half of 2011 or probably in the second quarter,” a source familiar with discussions said.
“It’s not a question of if it will happen but when it will happen.”
A second banker also confirmed the meeting took place. Officials from the Tadawul <.TASI> were unavailable for comment.
With the Gulf Arab kingdom benefiting from high oil prices and rolling out a $400 billion infrastructure program — the world’s biggest stimulus relative to GDP — foreign banks are keen on the Saudi stock market and biggest Arab economy.
But foreigners still make up only a fraction of trading. Big investors such as pension funds want the right to buy shares directly and not go through Saudi intermediaries who technically own the stock under the current rules.
Global banks and fund managers have set up shop in the kingdom to tap the massive infrastructure spend, but Saudi Arabia, the largest market in the region, does not allow direct foreign ownership.
Saudi Arabia is under increasing pressure to create jobs for its growing population. But brokerages in the kingdom have been plagued by low trading volumes after local retail investors were hit first by a 2006 market correction and then the financial crisis.
Bankers say many of the small local investment firms licensed in recent years to advise on initial public offerings (IPOs) returned their licenses as the market was so quiet, and foreign inflows could revive the industry.
At the moment foreign investors generally participate through swap instruments such as participatory notes. The kingdom also allowed exchange-traded-funds (ETFs) to trade in the bourse last year.
Twenty nine representatives from banks and brokers operating in the kingdom attended the meeting, along with members of the Tadawul including the head of its cash markets operation and manager for business development, the document showed.
The Tadawul index , home to companies like the world’s largest chemical maker, Saudi Basic Industries Corp (SABIC) rose more than 8 percent in 2010 after having risen 27 percent in 2009.
(Additional reporting by Frederik Richter in Manama, Ulf Laessing and Asma Alsharif in Riyadh; Editing by Sophie Walker)