Dubai: A week after the announcement of the ‘Saudi Vision 2030’ plan, the capital markets regulator announced more reforms to attract foreign investments.
The regulator of the $400 billion (Dh1.47 trillion) stock market in Saudi Arabia, which is the largest in the Gulf, will now allow foreign investors to hold a 10 per cent stake compared to previous 5 per cent, and have also lowered the limit of the total corpus for Qualified Institutional Investors to 3.75 billion Saudi riyals from the earlier 18.5 billion Saudi Riyals. The effective date for these change in rules will be published by the end of first half of 2017.
“The Capital Market Authority (CMA) aims for these measures to provide greater stability to the overall capital market environment, through applying international best practices, incentivising investors in an environment that supports the national economy,” the regulator said in a statement. The regulator will also implement the T+2 settlement cycle instead of the current T+0 cycle, to bring the markets in line with the international peers. The market regulator also approved the introduction of securities lending and covered short-selling as per the regulations.
Saudi Arabia in June last year allowed direct participation of foreign investors into its markets, and drafted rules as to which foreign entities can invest and how much of each company and the market they can own.
Crucial:
“These important steps play a crucial role in paving the way for the future inclusion of Saudi Arabia into the MSCI Emerging Market index, as a result of which Saudi Arabia will potentially amass a respectable share of flows into emerging-market equities,” Bassel Khatoun, CIO, MENA Equities, Franklin Templeton Investments (ME) Ltd said over an email, adding “such changes form part of a broader strategy to upgrade the post trade infrastructure in Saudi Arabia, in order to bring it in line with international standards.”
Analysts expect sustained foreign flows after the inclusion in the MSCI emerging market index. Currently only UAE and the Qatar indices form part of the EM index among the countries in the Gulf.
“Inclusion would significantly improve the profile of Saudi Arabia and the MENA region as a whole, whilst also bridging the gap between the region’s meaningful economic contribution and its equity market underrepresentation in Emerging Markets,” Khatoun said. Saudi Arabia, which derives all of its revenues from oil, has been posting budget deficits after a more than 70 per cent fall in prices. The kingdom since then has been solely depending on capital from investors by issuing bonds, sukuks among others to plug the deficit.
“Saudi corporates need liquidity, and the market is starting to tighten, in part because the government is going into bonds to plug its deficit. There is a crowding out, risk averse investors prefer to lend to the government rather than to corporates. The new relaxation of rules intends to make life easier for these corporates,” said Francisco Quintana, Head of research, Asiya Investments.
