(Adds foreign companies listing in fifth paragraph.)
Jan. 30 (Bloomberg) -- Foreign investors’ share of trades on Saudi Arabia’s stock market, the Arab world’s biggest, may increase fivefold in two years after the bourse allows direct purchases, a banker at Royal Bank of Scotland Group Plc said.
Overseas investors buy $400 million to $600 million of shares a month using swap agreements and that’s “2.5 percent to 3 percent of the total Saudi market,” Galen Moore, the U.K. government-controlled bank’s head of Equity Delta 1 and Financing, a unit that provides equity certificates representing shares, said in an interview in Dubai yesterday. “I wouldn’t be surprised if in 18 months or two years that figure is more like 10 to 15 percent of foreign investors in the market.”
The kingdom’s Capital Market Authority 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. Saudi Arabia, the biggest Arab economy, doesn’t permit non-resident foreigners to directly own shares in its listed companies. They can trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first ETF in March 2010.
Royal Bank of Scotland began offering swap contracts for Saudi shares in December 2010 and the lender has “built a decent business,” Moore said. “If you are in the Middle East, you have to be in Saudi for its size and the diversification it offers.”
In a sign of growing openness, Saudi Arabia said Jan. 22 it will allow overseas companies to list securities on its equity market. Companies that are already listed on another regulated exchange, where regulations are equivalent to Saudi rules, may apply, the CMA said.
The benchmark Tadawul All Share Index has a market value of about 1.29 trillion riyals ($344 billion). That compares with $641 billion for the Bloomberg GCC 200 Index, which includes the top 200 companies from the six-nation Gulf Cooperation Council such as Saudi Arabia, the United Arab Emirates and Qatar.
Saudi’s gauge was little changed at 6,553.71 at 2:39 p.m. in Riyadh. The measure has gained 2.1 percent this year. The MSCI Emerging Markets Index has risen 9.9 percent, while the Bloomberg GCC 200 Index is little changed for the period.
The government hasn’t set a time-line for opening its market to foreigners, stock exchange Chief Executive Officer Abdullah Al-Suweilmy said last month. It allowed citizens of neighboring Persian Gulf states to trade shares in 2007.
Saudi Arabia’s government has boosted spending in the last two years, including a $384 billion plan to build infrastructure and industrial projects. The economy of the kingdom, the holder of about 19 percent of the world’s proven oil reserves, expanded 6.8 percent in 2011, Finance Minister Ibrahim al-Assaf said on Jan. 27. He forecast expansion of more than 6 percent this year.
Luring Pension Funds
“Everybody talks about the BRIC countries” of Brazil, Russia, India and China, but “the Middle East provides the raw material that fuels the growth to these countries,” Moore said.
The Tadawul All Share includes 150 companies, including Saudi Basic Industries Corp., the world’s biggest petrochemicals maker by market value, and Saudi Telecom Co., the biggest phone company in the Arab world by assets.
Saudi Arabia’s “aspiration is to have long-term money in the market,” Moore said. With direct access to the market, institutions like the California Public Employees Retirement System, the largest U.S. public pension fund with $229.5 billion of assets, “will now be able to invest,” he said.
Institutions like U.S. endowments, have trouble now “in accessing the market with the restrictions on how much of their portfolio can be held in derivatives,” Moore said.
--Editor: Shanthy Nambiar, Susan Lerner
To contact the reporter on this story: Arif Sharif in Dubai at email@example.com
To contact the editor responsible for this story: Claudia Maedler at firstname.lastname@example.org