|By TAP Staff| The Saudi stock market, the largest market in the GCC with a total market capitalisation of approximately$550 billion, is drawing interest from a large number of potential foreign investors.
The Saudi Stock Exchange opened to qualified foreign investors (QFI) for the first time one month ago.
Increased participation from international financial institutions is primarily designed to help enhance the sophistication and stability of the market.
Overall stability of the market over the medium term is expected to increase with the introduction, in a measured manner, of direct investment by foreign institutions. This will come alongside moves to encourage a rebalancing of current stock market participants from individual investors – who account for approximately 34% of market ownership and 90% of monthly trading activity – to institutional investors.
Since the introduction of the swap framework in 2008, non-resident foreign investors have been net buyers in the market, providing greater stability to prices at a time when local individual investors have been net sellers. In fact the correlation in investment behaviour between these two investor classes has been negative over the last five years and nearly inverse over the last 3 months as local individual investors sold nearly SAR14 billion worth of shares in the market whilst foreign investors did the reverse, buying SAR1.7 billion of shares through the swap framework over the same period.
One of the key objectives of the QFI framework is to enhance the impact of this counterbalancing influence by increasing foreign institutional investor participation. Currently, holdings of non-resident foreign investors through the swap framework account for 1.07% of total market capitalisation, while non-resident strategic foreign partners, resident foreign investors, and GCC investors combine to account for a further 6.7% of total market capitalization.
The impact of foreign investors on the diversity and stability of our market is expected to grow as a consequence of the QFI framework, which increases the degree of openness of the Saudi stock market to foreign investors.
The QFI rules ensure that only the largest and most experienced foreign investors are allowed to enter the stock market. Indeed the rules require that foreign institutional investors have a recognized investment track record and assets under management of at least USD5bn, amongst other conditions. This means that institutions deemed to be qualified to invest in the stock market possess the highest international levels of governance, advanced investment practices, and longer term investment horizons; characteristics which are expected to enhance the stability and institutionalisation of
the Saudi market.
As the largest market in the GCC with a total market capitalisation of approximately US$550 billion, the Saudi stock market is drawing interest from a large number of potential foreign investors.
Saudi Arabia represents nearly 50% of the US$1.6 trillion Gulf economy and is the 19th largest economy in the world. The Saudi Stock Exchange is also one of the most diversified Exchanges in the region, with its listed companies ranging from petrochemicals and retail through to financial services, construction and telecommunications, providing potential investors with opportunities in a wide variety of sectors.