Saudi companies will benefit from increased interest in their stock as a result of the authorities’ allowing foreign institutions to buy shares on the Saudi market. At present, foreigners can only buy Saudi stocks through derivatives and investment funds and as a result, only five per cent is owned by non-Saudis. The new regulations mean that foreign institutions will be able to register and buy stocks directly.
The Saudi market is the biggest in the Middle East and there will be keen interest on the part of foreign institutions to come into the market. International investors are looking for strong-performing markets and the Saudi economy is expected to achieve a good growth rate of around 4 per cent this year. The Saudi market includes some of the Middle East’s strongest blue-chip companies. The move is part of wider government efforts to open up the closed Saudi economy and diversify it beyond oil.
Nonetheless, Saudi authorities will want to avoid a flood of hot money and they are well aware of the dangers of volatility created by outside investors ruthlessly looking for quick returns in a fast-moving market with little regard for the real economy represented by the shares they are trading. Therefore, the Saudis are expected to build a tight regulatory framework to limit inflows, such as only allowing a handful of investment licences to foreign institutions, which they will closely monitor to see the impact on the market before opening up to more.
