Saudi Tadawul is no bull today, but has a deal or two for bears
Investors got spooked when scores of Saudi individuals were recently rounded up for questioning and are still facing numerous corruption charges, with no clear outcomes yet envisioned, not to mention the kingdom’s freezing of over 2,000 Saudi bank accounts.
Reuters noted that foreign investors have, for the third week in a row, tipped the balance of equities towards a net sale, albeit the nervousness did abate last week, quoting exchange data on Sunday November 26.
The $440 billion Saudi stock exchange Tadawul has been focusing efforts on liberalizing the stock market, and making itself more appealing to investors, and it looks like it will double those efforts come the new year, especially with plans to list the Aramco IPO.
But has the fear subsided?
Fear from it
Reuters said that foreign investors sold $223 million worth of Saudi stocks and bought $160m in the week through November 23, resulting in net selling of $63m.
That compares with net selling of $82.4 in the week to November 16 and $290m in the week to November 9, immediately after the crackdowns were announced.
“The latest data also showed selling by Saudi individual investors easing. They sold $2.8bn in the latest week and bought $2.53bn. In the previous week, they were net sellers by a margin of $640m,” said Reuters.
While individuals sold out of fear funds could be seized, “Saudi institutions, mostly mutual funds and corporations, have been heavy net buyers since the crackdown was launched.”
Tadawul opening up
The Saudi Capital Market Authority (CMA) plans to put in place new rules to make the listing of stocks and debt instruments easier, the CMA’s chairman Mohammed El Kuwaiz said this year.
El Kuwaiz said that foreign investors could participate in IPOs within Saudi Arabia and that the Saudi stock exchange could absorb the entirety of Saudi Aramco’s IPO, involving the sale of 5 per cent of its shares for $100bn.
He also plans, as of January 1st 2018, to give foreign investors complete access to Saudi Arabia’s Nomu, the secondary market aimed at SME’s who don’t have access to large funds and cannot abide by the Tadawul’s more stringent rules.
Reuters said that Saudi Arabia has now more than 100 qualified foreign institutional investors.
Saudi Arabia plans to further open up its stock market to foreign investors later this year as it seeks to become an international capital markets hub, El kuwaiz, told Reuters recently.
Regulation on the creation of special purpose entities (SPE) to house assets for debt will allow the CMA to approve and license SPEs to stimulate debt activity, according to Reuters.
Clifford Chance, a multinational law firm said this year that there was progress on the liberalisation of the Saudi equity market, with the publishing of draft rules for regulations in relation to the move from the T+0 to the T+2 cycle for settlement of securities transactions.
Innovative and inviting interest
Tadawul announced that short selling of stocks will be permitted from 23 April 2017 in a move intended to make the market more attractive to foreign investors by providing flexibility to hedge.
Short-selling is banned in the Gulf but foreign investors have been able to short sell stocks using offshore swaps, according to Reuters.
The exchange will impose several restrictions, such as investors can only sell borrowed stocks short, limiting selling to investors such as funds; and the exchange will specify which individual stocks can be sold short.
Tadawul expects its market capitalisation to climb beyond $1trn in the next five years, and is reportedly receiving investment inquiries from international exchanges.