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Thu 26 May 2016 01:43 PM

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Foreign investors still cautious after opening up of Saudi's Tadawul

Jadwa research note says net inflow from foreign investors make up just 0.1% of market capitalisation

Foreign investors still cautious after opening up of Saudi's Tadawul
(Getty Images)

Lower oil prices and heightened regional geopolitical tensions have slowed the take-up by foreign investors in Saudi Arabia's stock market since Tadawul opened up in July 2015, according to Jadwa Investment.

In a research note, Jadwa said that latest data shows that in the nine months to March, net inflow from foreign investors amounted to SR793 million ($211.4 million), equivalent to 0.1 percent of market capitalisation of SR1.5 trillion.

Saudi Arabia earlier this month said it will loosen restrictions on foreign ownership in its stock market in order to improve the investment environment.

Each investor under Saudi Arabia's Qualified Foreign Institutions (QFI) scheme, which allows foreign institutions to buy stocks directly, will be allowed to own a stake of just under 10 percent of a single company, the Capital Market Authority said.

Jadwa said that looking at the nearer term, it expects foreign investor interest in Tadawul to start picking up gradually as both domestic and international developments add to already improving sentiment. Jadwa's research note said: "As the region’s largest, diverse and most mature capital market, these rules, when applied during H1 2017, will mean that Tadawul will lead the region in being the first to introduce market instruments and processes that not only increase market liquidity, but also add to institutional confidence and investor choice."

It added: "In our view, the recent CMA amendments are not motivated by any concerns over the slow uptake by QFI in the short-term, but are shaped by wider macro-economic reforms outlined in Saudi Vision 2030.

"We believe that encouraging QFIs entry into Tadawul will have positive implications for the Saudi economy."

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