UAE | General
Saudi stock market gets big boost
- By Nadim Kawach
- Published: 00:00 June 17, 2003
Saudi Arabia gave its final approval for the long-awaited stock market after the project was endorsed by the Supreme Economic Council and the Parliament following lengthy heated debates.
Saudi Arabia does not have a physical stock exchange but electronic trading of shares is controlled by the Saudi Arabian Monetary Agency (SAMA), the Gulf state's central bank.
The cabinet, in a meeting headed by King Fahd, approved the law which calls for the setting up of the Saudi Arabian Stock Exchange and the Saudi Arabian Securities and Exchange Commission to protect investor interests, ensure orderly and equitable dealings and develop the market.
Saudi officials hope a more efficient and transparent stock market would encourage more listings and raise quick capital to finance some major projects under way in the country. The stock index has recently hit record highs due to firm oil prices and investor optimism about corporate earnings.
Last year, the government launched a $4 billion public offering of sole provider Saudi Telecommunications Co (STC) to Saudis in its biggest partial privatisation in years. STC was listed in January and is the largest stock with a market capitalisation of 118 billion riyals ($31.5 billion).
Saudi Arabia, the world's largest oil exporter, said last month it plans to sell stakes in big public firms to jump-start its long-stalled privatisation programme and tackle the budget deficit and unemployment problems.
Following heated debates over the past two years, the Saudi Shura Council finally endorsed the establishment of an official stock market early this year to replace the existing electronic share-dealing bank network that requires investors to go personally to banks for trading.
The project has been under discussion for a long time and it has faced tough opposition by the influential Islamic fundamentalists within the Council and the government on the grounds a stock exchange is considered a form of usury, which is taboo in Islam.
Malik Yunus, an economist at NCB and another Saudi economist, Ihsan bu Hlaika, said a stock market was needed to regulate share dealing, which is supervised by the Saudi Arabian Monetary Agency, the Kingdom's Central Bank. Besides, such an exchange has become essential for the expected privatisation programmes in the Kingdom, they said.
According to a prominent Saudi stock broker, the creation of a formal exchange will attract at least 500 companies from Saudi Arabia and other Gulf Arab states to the market once regional governments agree on cross-listing as part of plans to link their bourses.
Bushr Bakheet, director of the Riyadh-based Bakheet Centre for Financial Consulting, said the materialisation of a bourse also means the creation of a regulatory body for stocks investment instead of the present supervising committee.
He argued that such a body would be better placed to attract capital and organise dealing which he saw as essential to ensure the success of privatisation programmes.
In recent press comments, Saudi Finance Minister, Ibrahim Al Assaf, said it was time for Riyadh to set up a stock exchange and declared that such a project follows a decision to allow foreigners to invest in local funds as a prelude to direct investment in Saudi shares.
Saudi Arabia has the biggest share market in the Middle East, with the market capitalisation of the 69 listed companies peaking at nearly $97.8 billion at the end of the first quarter of this year. The level accounts for more than 40 per cent of the total capitalisation of Arab stock markets of around $234.5 billion at the end of March.
In terms of dealing, the Kingdom's market is also by far the busiest, with a turnover of around $11.7 billion during the first quarter, more than half the total Arab share turnover of $20.6 billion.
Saudi Arabia is locked in a major reform programme aimed at offsetting economic and fiscal damage caused by volatile oil prices and production. The drive includes privatisation and attracting investment, mainly in the manufacturing sector.
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