The biggest economy in the GCC, and the 19th largest economy in the world, Saudi Arabia had a nominal GDP of $753bn in 2014. It is also the most populous nation in the GCC with 30.8m people, more than half of which are under the age of 30.
Under the new rules, qualified financial institutions must have a minimum of five years of related experience and have at least $5bn (SAR 18.75bn) of assets under management. Saudi regulator, the Capital Markets Authority, also has the right to reduce this threshold to $3bn (SAR 11.25bn).
Tadawul is the largest stock market in MENA, and the seventh largest in the global emerging market (GEM) universe, with an average daily value traded of around $2.5bn, according to Emirates NBD Asset Management.
However, Tadawul has not been included in the MSCI Emerging Markets Index because of the restrictions on foreign ownership.
According to market estimates, if included, Saudi Arabia could hold a weight of as much as 4.4% in the MSCI Emerging Market index, which could translate into $5bn of inflows into the Tadawul.
Foreigners currently own an estimated 1% of the market. If the total foreign ownership in Saudi Arabia were to increase to 5%, the equivalent of the average foreign ownership level in the UAE and Qatar, then that could translate into inflows of $25bn, Emirates NBD predicted.
Yong Wei Lee, head of MENA Equities at Emirates NBD Asset Management said: “Whilst, I don’t think we are going to see a big bang in foreign inflows on day one, the opening of the Saudi market to foreign investors is definitely a positive for the market in the long run, especially in light of an entry into the MSCI Emerging Markets later.”
In further reaction, Oliver Bell, manager of the T. Rowe Price Africa & Middle East Fund, said there are 168 listed companies covering 15 industries in Saudi Arabia – from petrochemicals, banks, telecoms, hospital groups, education and travel companies. The notable exception is oil, which remains state controlled.
“A further attraction for global investors is the liquidity of the market, which can trade up to $4bn a day. Up until now non-resident foreigners, through swaps, only make up 1% of the market in terms of both value traded and percentage held. This is compared to 64% ownership in Turkey and 30% in Brazil or South Korea”, he said.
Bell also said the obstacles before Saudi Arabia can enter the MSCI index were “likely to be overcome in due course. The lead time towards inclusion in the MSCI Emerging Markets index can be relatively long, and … this is unlikely to happen for Saudi Arabia before 2018”.
