Saudi Arabia will allow overseas companies to list securities on the Arab world’s biggest bourse, fueling speculation the country may open to foreign investors.
“It’s a good step, a step closer to further opening the market to foreign investors,” said Turki Fadaak, head of research at Riyadh-based Albilad Investment Co. “At this stage, current investors will trade stocks listed by foreign issuers, and in later stages, foreign investors too will be trading these shares.”
Securities that are listed on another exchange with at “least equivalent” rules to those in Saudi Arabia can apply for a dual listing in the kingdom, the rules posted on the Saudi Arabian Capital Market Authority’s website Sunday said.
The country doesn’t permit foreigners to directly own shares in its listed companies. The government allowed citizens of neighbouring Gulf states to buy and sell local shares in 2007. The nation’s benchmark Tadawul All Share Index has a market value of about SR1.28 trillion ($341bn).
Saudi Arabia hasn’t set a time-line for opening its market to foreigners, stock exchange Chief Executive Officer Abdullah Al-Suweilmy said last month. The kingdom’s market regulator is in discussions with international banks to open the exchange to foreign investors in the first quarter, three bankers familiar with the matter said in October.
Non-resident foreigners are permitted to trade through share-swap transactions and exchange-traded funds, with the market regulator approving the first ETF in March 2010.
Saudi Arabia’s stock market may gain frontier market status at MSCI Inc. “quite quickly” if it opens up to foreign investors in the first quarter, HSBC Holdings said in a report earlier this month. An inclusion at the index provider may also pave the way for an upgrade to emerging market status, HSBC said.
MSCI classifies six of the Gulf’s seven bourses as frontier markets, a designation that typically applies to economies and financial markets that are less developed.
The 150 companies on Saudi’s benchmark trade at 10.8 times estimated earnings. That compares with 12.6 times for the S&P 500 Index.