Saudi Arabia’s stock market streamlining

Kingdom Centre2The long wait is over … almost. Reports indicate that by April eligible foreign institutional investors will be allowed to start trading directly in listed shares on Saudi Arabia’s local Tadawul stock market, writes Jad Fares, Advent’s regional manager for Saudi Arabia.

To date, foreign investors have been restricted to indirect ownership of Saudi stocks through exchange-traded funds and swap agreements with authorised intermediaries. But as long-time operatives in the region, we’ve seen significant pent up demand for more. No surprise then that opening the gates to direct foreign investment – even though certain limitations will still apply – is expected to lead to a surge of inflows.

The attractions are obvious. The Tadawul market is by far the largest in the Middle East, with a strong liquidity and performance track record. Despite its oil dependence and the impact of plunging oil prices, the country also boasts strong corporates and enormous fiscal reserves that the government can draw on to sustain economic growth.

Inflows could also see a further massive hike if the market’s opening results in an upgrade from frontier status to inclusion in the MSCI emerging markets index, as has been widely predicted.

For asset managers, the anticipated capital inflows and allocations offer mouth-watering opportunities. But not everyone’s boat will float on the rising tide.

Foreign investors bring strict due diligence requirements and high service standard expectations. As years of experience have shown, only those asset managers with best-of-breed technology infrastructures able to provide sophisticated trading, risk management, portfolio accounting and reporting capabilities will be positioned to take advantage.


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