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A note of caution for foreign investors on Saudi bourse

August 25, 2014 9:50 am

Global investors, hoping to cash in on the opening of the Saudi bourse, will only be able to own 20 per cent of individual companies.

Under the ‘draft rules’ of the upcoming changes, the Capital Market Authority, Saudi’s financial regulatory body, announced a series of caps that would limit the Tadawul’s exposure to foreign influence.

Namely, foreign investment institutions will only be able to own a maximum of ten per cent of the overall market.  Currently valued at $580 billion, this would mean that Tadawul would be open to $58bn worth of investments from abroad. John Sfakianakis, an investment strategist, explains that the ten per cent cap would not prove problematic, as the current interest stands at between $45bn and $50bn. Moreover, “as the market opens and foreigners become more involved in the market, the comfort level between locals and foreigners will increase,” Skafianakis adds.

For an institution hoping to invest on the Saudi bourse, it would need to have five years’ investment experience, along with $5bn in assets, and, in return, could gain a maximum of five per cent stake in a single company.

Moreover, in order to protect assets in holy cities from non-Muslims, a restriction has been placed on shares in real estate firms from Mecca and Medina, such as Makkah Construction and Development Co. and Taiba Holding.

Since the decision was announced that the Tadawul would open to non-GCC nationals, interest in the market has skyrocketed, as it reached a six-and-a-half-year high last week. Nonetheless, the new restrictions are unlikely to further buoy excitement, which was echoed in last Thursday’s (August 21) performance, when 80 companies fell in value compared with the 62 that saw gains.