The highly anticipated move, which comes as part of $130bn spending plan to diversify the country’s economy away from oil, sparked a 3% rise in the Tadawul index when it was announced yesterday.
“The marker will be open to eligible foreign financial institutions to invest in listed shares during the first half of 2015, with God’s permission,” the Capital Market Authority said in a statement.
After the market is opened up, foreigners will be able to buy Saudi stocks directly on the Tadawul.
Currently, FFIs are limited to buying Saudi stocks through swaps with international banks and through a small number of exchange traded funds.
Interest in Saudi stock is large because of the countries strong economy, but foreigners currently account for just 5% of the country’s market.
Ghadir Abu Leil Cooper, head of EMEA and frontiers equity team, at Baring Asset Management said the company had been long awaiting for the news: “It’s part of the government’s programme to diversify the economy.
“To do this successfully will require attracting overseas investment, and having a fully functioning capital market goes hand-in-hand with that.”
He said that fully opening the market up will have a positive impact on corporate governance, allowing valuation multiples to expand.
“Also, as the financial sector continues to grow in Saudi Arabia we will see increased use of pensions and mutual fund products as individuals save for retirement,” he added. “A fully functioning equity market would clearly be beneficial for capital allocations and management of liabilities as well as estate planning.”
