A wall of international investment is preparing to enter Saudi Arabia's US$379 billion (Dh1.39 trillion) stock market as expectations build that the market will soon be opened more fully to foreign investors.
Money managers say an easing of tight investment laws will give a boost to liquidity in the Arab world's largest economy and the wider region.
"We have tremendous pent-up demand to trade in Saudi Arabia from both retail and institutional investors," said Salim Sebbato, the general manager at DUTrade, the international brand for regional brokerage house Mubasher Financial Services.
"If they did open to foreign investments, we could see their market capitalisation exceed Brazil's."
Saudi Arabia's Tadawul, the largest bourse in the Arab region, has long remained off limits for many international investors. At the moment, non-resident foreigners outside of the GCC can invest through equity swaps and exchange-traded funds. But about 90 per cent of current market activity is on behalf of retail investors.
Some members of the international financial community have suggested recently that may change. John Burbank, the founder of the $3.7bn San Francisco-based hedge fund Passport Capital, was quoted as telling Bloomberg last week that foreign direct investment (FDI) in Saudi Arabia's equity market could happen in the next year and may attract as much as $30bn of inflows as a result.
Jamal Al Kishi, the chief executive of Deutsche Securities Saudi Arabia, said this week he was "convinced" the market would open up to foreign investment and was "optimistic" it would be soon.
Hopes have been raised after a change in leadership at the Capital Market Authority. Mohammad Al-Sheikh, the new head, specialises in mergers and acquisitions, capital markets and project finance at the law firm he runs.
Mark McFarland, the chief investment strategist at Emirates NBD Wealth Management, said the boost would be biggest if the move happened at the same time as the UAE being granted emerging market status by the index provider MSCI.
"You can already invest in the Saudi market through the investment programmes of GCC based fund manger houses," he said. "But if you got that [Saudi Arabia's market opening up] and the opening up of the UAE to emerging market status, the region as a whole should see a lot of benefits."
Mr Sebbato said a relaxing of the law could also help Saudi Arabia market's chances of an upgrade.
"It can exceed Brazil in the long term," he said. "If it opens up it has the potential for an upgrade to emerging market status by MSCI."
One of the darlings of the international investment community, Brazil's stock market capitalisation stands at $1.22tn compared to $379bn for Saudi Arabia.
Petrochemicals and banks are among the sectors foreign investors are eyeing in Saudi Arabia, say bankers.
"It will allow more depth in local stock markets and would be positive interms of portfolio investment," said Raza Agha, the chief economist, Middle East and Africa at VTB Capital.
"Attracting more liquidity to the stock market means greater, more diverse opportunities for domestic firms to raise equity."
halsayegh@thenational.ae
