Saudi shares rally, market to open for foreigners

July 22, 2014 5:49 pm

With a day-gain of 2.97 per cent on Tuesday, July 22,, the Tadawul All-Share Index (TASI) reacted to news that the Saudi cabinet authorized in a widely expected move the Capital Market Authority (CMA) to allow foreign financial institutions to buy and sell stocks on the Saudi Stock Exchange in Riyadh. Shares gained across all sectors, with the exception of media and publishing.

The market gauge TASI closed nearly three per cent higher at 10,039.44 points, representing a seven-year high.

Market bellwether SABIC jumped 6.85 per cent to close at SAR123.50.

Executives and analysts in the GCC welcomed the move. “Saudi opening up to international investors will be good for Saudi and good for the entire region. Glad to see this happening,” tweeted Jeff H. Singer, the CEO of the Dubai International Financial Center (DIFC) Authority.

Moustafa Zantout from the Kuwait-based investment bank Global Investment House said as the release by the cabinet has stated, the CMA still has to publish the timing and ultimate rules by which foreigners will be allowed in the market. “The CMA is expected to publish the rules over the coming months and we believe the actual opening of the market will be in the first half of 2015.”

New rules to open the biggest MENA stock market for foreigners will be laid down by the CMA in the coming months.

Matthieu Belondrade, the Head of Global Emerging Markets Equities at French wealth management firm Natixis Asset Managements said “Saudi Arabia’s market cap ranges between $500-550 billion. According to MSCI, the full market cap of Saudi Arabia ranges between $400-450 billion, with an estimated free-float between $150-200 billion.”

He added “Currently, Saudi Arabia is covered by MSCI but does not belong to a specific category. This means that, if Saudi Arabia was to join the MSCI Frontier Markets, it would become its first component with a weighting above 60 per cent. If Saudi Arabia was to join the MSCI Emerging Markets, it would get a weighting of between 4 per cent and 5 per cent, similar to that of Russia.”

These announcements is likely that they will trigger a surge of foreign inflows to the Saudi market, particularly in the context of an MSCI inclusion, said Belondrade.

KSA has been also the biggest MENA market for new listings in recent years. Some IPOs recorded triple-digit gains on the initial trading day. But Josef Schuster, CEO of IPOX Schuster, Chicago, who developed indexes tracking new listings globally said the experience with “shooting stars” among IPOs is rather negative on a mid-term and long-term basis.

Gérard Al-Fil