Saudi Stock Market Easing Restrictions on Foreign Investment

Saudi Stock Market Easing Restrictions on Foreign Investment

Saudi Stock Market Easing Restrictions on Foreign Investment

Ownership limits and minimum qualifications for overseas institutions will be eased next month

Saudi Arabia will ease restrictions on foreign investment in its securities markets next month, sooner than previously indicated, in an effort to attract more institutional money into its exchange, the regulator said Wednesday.

With Crude Oil prices sagging and the economy slowing, Saudi authorities are keen to attract more foreign capital into the Kingdom. The stock market opened to direct investment by foreign institutions in June last year, but all types of foreign investor still own only 1.03% of the $390-B market.

In May, the Capital Market Authority (CMA) announced it would ease ownership limits and minimum qualifications for overseas institutions by mid-2017.

In a statement Wednesday, it said the reforms would take effect on 4 September.

Among the reforms, each asset manager will only need to have a minimum of $1-B of assets under management globally to qualify as a foreign institutional investor in Saudi Arabia, instead of the current minimum of $5-B.

Each foreign institutional investor will be allowed to own directly a stake of just under 10% of a single listed company, up from the current ceiling of 5%.

Other restrictions will be scrapped, including a ceiling of 10% on combined ownership by foreign institutions of the market’s entire capitalisation. All foreign investors combined will still be limited to owning 49% of any single firm.

At the end of Y 2015, just 9 foreign institutions had obtained licences to invest directly in the Saudi market. Fund managers have said that while the reforms are welcome, the number of foreign investors will not necessarily rise sharply when restrictions are eased, given slowing growth and inefficiencies in the Saudi economy.

In May, the CMA also said it had approved the introduction of securities lending and covered short-selling to the stock market, which would give investors more options to hedge their purchases against downturns, while the exchange would introduce during 1-H of Y 2017 the settlement of trades within 2 working days of execution.

The regulator did not say whether the timetable for these reforms would also be accelerated.

Stay tuned…

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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