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Saudi bourse to open to foreigners shortly
Saudi Arabia could shortly open its stock exchange to foreign investors, Deutsche Bank's head of MENA equities said, a move which would allow international capital to own shares outright on the Middle East's largest bourse for the first time.
October 23, 2011 2:36 by Reuters
“I do see it happening very soon,” Ahmed Beydoun told Reuters in a telephone interview. “The Saudis have been very vocal in the last month on that and their desire to be included in MSCI. They say they would like to open up but all the factors have to be considered.”
Presently, international investors can only buy into Saudi shares through equity swap arrangements, where a licensed intermediary in the Kingdom holds the stock on their behalf, or a small number of exchange traded funds (ETFs).
However, there has long been foreign demand to have access to the Tadawul bourse, which had a total market capitalisation of 1.2 billion riyals ($323.7 billion) at the end of September, according to bourse data.
This is nearly on par with the combined bourse capitalisation of the other six domestic exchanges in the Gulf Cooperation Council (GCC) — including the Abu Dhabi and Dubai exchanges — of $331.4 billion, according to Thomson Reuters data.
Saudi currently has no classification within the influential MSCI indices, but its size would likely gain it emerging market status if it were to join.
Market estimates put the kingdom’s potential weighting at 2.5 to 3 percent, which would be around double Turkey’s current position.
Emerging market status within MSCI is considered important because many international fund managers will only track stocks in countries which have achieved this mark.
Both Qatar and the UAE are awaiting a December decision by MSCI on whether to upgrade them from frontier to emerging market status and Beydoun is positive towards their chances.
“There’s a good possibility that they will get upgraded,” he said.
The two-year review of both nations’ applications was due to be concluded in June but was delayed to allow more time for MSCI to conduct its inquiry.
Equity issuance out of the Middle East has been subdued since the 2008 financial crisis, with only sporadic deals on regional bourses in that time.
Global economic turmoil, poor regional investor sentiment and the unrest caused by the Arab Spring have all contributed to the lack of initial public offerings, with a number of entities awaiting the right conditions before going public.
“The pipeline continues to be heavy,” Beydoun said. “We had a very healthy pipeline in Egypt before the fall of Mubarak. Now the UAE and Qatar are our major markets that we’re focusing on, as well as Saudi Arabia.”
Some firms have attempted to bypass unfavourable local conditions and list on bourses outside the region, with London a popular destination.
Dana Gas is among a number of names thought to be planning a listing in the United Kingdom.
However, Beydoun didn’t think it was a trend and was more a decision made by individual corporates on a case-by-case basis.
“We give them advice and sometimes they say they would prefer to list in London as the investor base is more diverse.”
Deutsche Bank confirmed earlier this month that Christopher Laing, its head of MENA equity capital markets, was relocating to London from Dubai at the end of the year.
While the lack of business has been behind a number of banks’ decisions to reassess the resources they deploy in the GCC, Dubai-based Beydoun said the German bank was still fully committed to having a presence in the UAE.
“We have on the ground sales, trading and research presence and we manage our risk onshore, with London playing a centralised role,” he said. “We have a fully integrated model that services clients in both the international and local markets, which allows us to be more versatile in volatile and challenging market environments.” ($1 = 3.750 Saudi Riyals) (Reporting by David French)