Saudi Arabia's decision to allow foreign companies to list securities in the Arab world's biggest bourse may help the region's equity markets lure investors and boost trading volumes.
Securities on another exchange with comparable listing rules to those in Saudi Arabia can apply for a dual listing in the kingdom, according to new regulations posted on the Saudi Arabian Capital Market Authority's (CMA) website yesterday. The country currently doesn't permit foreigners to directly own shares in its listed companies. The government allowed citizens of neighbouring Gulf states to trade in shares in 2007.
"Some UAE issuers could list in Saudi Arabia and attract decent liquidity and valuations," Dubai-based Ebrahim Masoud, who helps manage about $400 million (Dh1.469 billion) at Mashreqbank, said. "We keep talking about a regional exchange, Saudi could be it."
Gulf stocks have been hurt by uprisings in the Middle East and North Africa and Europe's debt crisis. Trading volume on Dubai's benchmark stock index plummeted to a six-year low in 2011. Saudi Arabia's stock market may gain frontier market status at MSCI Inc. "quite quickly" if it opens up to foreign investors, HSBC Holdings said this month.
An inclusion at the index provider may also pave the way for an upgrade to emerging market status, HSBC said. Qatar and the UAE, whose stock markets have the second and third-largest market values in the Gulf, are up for review from frontier market status in June.
MSCI classifies six of the Gulf's seven bourses as frontier markets, a designation that typically applies to financial markets that are less developed. MSCI indexes are tracked by funds that oversee about $3 trillion in assets, so getting promoted to emerging market from frontier can increase investment.
No timeframe yet
Saudi Arabia hasn't set a timeline for opening its market to foreigners, stock exchange CEO Abdullah Al Suwailmi said last month. The regulator is in discussions with international banks to open the exchange to foreign investors in the first quarter, three bankers familiar with the matter said in October.
The Tadawul has a market value of about 1.28 trillion riyals (Dh1.252 trillion).
The kingdom permits non-resident foreigners to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first ETF in March 2010.
"Saudi Arabia seems to be opening itself up to the world here," Mashreqbank's Masoud said. "This is really a step ahead of the traditional first steps markets take, which is to let foreigners in" and then allow them to raise money by cross-listing, he said.