Business | Markets
Saudi Arabia becomes first in Gulf to follow free-float methodology
Move will see a significant change in the rankings of top 10 firms
- By Mariam Al Hakeem, Correspondent
- Published: 00:28 April 18, 2008
Riyadh: Saudi Arabia becomes the first GCC market to follow a free-float methodology in its indices and moves closer to adopting global best practices in the capital markets.
This information was contained in a report released yesterday by NCB Capital, the investment arm of the National Commercial Bank.
The report discusses how the adoption of the free float methodology will see a significant change in the rankings of the top 10 companies and reduce market concentration of the top 5 companies to 35.5 per cent (from 48.5 per cent earlier).
Interestingly, NCB Capital's research team computes that just 4.5 per cent of turnover in the Saudi equity markets are attributable to corporates and mutual funds, validating that the institutional presence of the Saudi markets has tremendous scope for increase, the report said.
According to the report, Saudi retail investors follow an aggressive trading pattern with a level of churn (defined as turnover divided by net investment) at over 118 times. In comparison Saudi corporates have a considerably lower level of churn at just 7 times.
Using Tadawul's data on free float of shares in each company, NCBC estimates that the Saudi equity markets has an aggregate free float market capitalisation of 657 billion Saudi riyals ($175.5 billion) or 38.3 per cent of its total unadjusted market cap weight. This compares favorably with the MSCI emerging market average of 31.7 per cent.
The adoption of the free float methodology will see a significant change in the rankings of the top 10 companies.
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