The Saudi stock will open up to foreign investors for the first time in its history this April, according to three Bloomberg sources. The long-awaited liberalisation was announced in the summer, but authorities refuse to put a solid date on the move.
It’s worth just shy of $US500 billion and until now, international investors have been basically blocked from buying Saudi stocks. Investors from gulf states were able to invest, but the largest exchange in the Arab world was inaccessible to anyone from further afield. Accessing exchange-traded funds was the best any other investors could hope for.
That all ends in just four months, according to Bloomberg:
The Capital Market Authority informed brokers and fund managers of the timeline in London last month, two of the people said, asking not to be identified as the meeting was private. Saudi Arabia isn’t planning significant changes to draft rules published in August, the people said. The country announced in July that it would open the market in the first half of 2015.
By market capitalisation, the Tadawul (Saudi stock exchange) is around the same size as the Moscow Exchange ($US492.6 billion) and five times as big as Dubai’s ($US97.3 billion), according to the latest data from the World Federation of Exchanges.
Earlier this year, Ashmore Group noted the big opportunities in Saudi Arabia, with rapid consumption growth driving stocks.
One of the key policies announced in Saudi Arabia was the labour reform introduced since the Arab Spring. This policy is designed to encourage employment of local rather than cheaper foreign workers. While in the near term this may mean higher wage costs and resultant slower growth, this policy also creates a catalyst for growth in domestic consumption. The government has also increased minimum wages, opened doors to allow a greater number of women to enter the workforce and introduced unemployment benefits. Together this means higher discretionary income which is driving Saudi consumer spending growth to be amongst the highest in Emerging Markets
Those are looking a little less rosy now that oil prices have dropped. The Tadawul is down about 20% since September. But it’s still up about 2% since late December last year, suggesting some resilience even as Brent crude prices have tumbled by nearly half.