The Saudi Tadawul is expected to be catapulted into the top ten of global equity markets upon opening to international buyers, as trading volumes on the kingdom's exchange continue to soar.
Top-10 ranking in sight for Tadawul
Saudi Arabia's stock exchange is expected to quickly rank among the world's 10 most active markets if it opens up to international investors.
The Saudi Tadawul has attracted high levels of activity in recent months as speculation mounts that an easing of restrictions on foreign investors may be imminent. Currently, such investors are barred from trading except through swap agreements.
The kingdom's exchange has been one of the most active among emerging markets - and is only expected to grow faster if international investors are given access, said Ahmed Beydoun, the regional managing director of Deutsche Bank's equity business.
"Without international clients, the Saudi stock exchange back in 2007 and 2008 was the 10th-largest stock exchange in terms of turnover in the world," he said. "There's a significant upside to Saudi Arabia for international investment … At the moment, we're trading more than we're trading in Russia."
Traded values on the Tadawul reached a high of US$4.3 billion (Dh15.7bn) on Tuesday amid growing excitement among banks. By contrast, the value of daily trading on the Dubai Financial Market peaked at $2.9bn in November 2007.
One of the reasons behind the large turnover of Saudi equities, compared with those of other Gulf countries, was that Saudi regulations on finance adhere to Islamic principles, Mr Beydoun said.
"Equities as an asset class are always going to be very highly regarded in Saudi Arabia and highly sought after, because it's Sharia-compliant," he said.
Banks in the kingdom are prohibited from paying interest on deposits, limiting Saudis' options for profitable investments.
The Tadawul All-Share Index closed up 0.6 per cent at 7,567.98 on Wednesday, within 90 points of a entering a bull market since the start of the year. A bull market is defined as an increase of more than 20 per cent in a given period.
Saudi markets were closed yesterday for the weekend.
Banks including Britain's Barclays Capital, Japan's Nomura and Russia's VTB Capital are keen to take advantage of the expected opening up of the Saudi Tadawul.
Institutional investors were queuing up to tap into the Saudi Arabian market, said Michael Cole-Fontayn, the chairman of BNY Mellon in Europe, the Middle East and Africa. "We believe that there's willing institutional participation [in the region].
"Whenever the Capital Market Authority or the Tadawul come to London or the US, they draw a very big audience of interested institutional investors."
BNY Mellon sees both the possible opening up of the Saudi stock market and recent rule changes allowing non-Saudi companies to list on the Tadawul as potential opportunities to expand its depositary receipts business.
Depositary receipts are bundles of shares listed on foreign stock markets to allow investors who are limited to investing in a certain market to deploy capital overseas.