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Sun 19 Apr 2015 12:46 PM

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Saudi Arabia’s market surges before it opens to foreigners

Fresh fund flows into Saudi Arabia in the initial months may be moderate, partly because of high share valuations

Saudi Arabia’s market surges before it opens to foreigners

Saudi Arabia's bourse surged in early trade on Sunday after the regulator said it would open the bourse to direct foreign investment from June 15.

The main index rose 3.9 percent to 9,614 points, breaking minor technical resistance at the late March high of 9,377 points and standing above the 200-day average, now at 9,572 points. It has not stayed above the average on a sustained basis since last November.

The kingdom announced last July that it would permit direct foreign purchases of shares in the first half of 2015, as a way to expose companies to market discipline, diversify the economy beyond oil and create jobs.

The Capital Market Authority announced after the close on Thursday that qualified foreign institutions would be able buy shares from mid-June and that the final rules covering this would be published on May 4. Up to now, foreigners have been restricted to buying Saudi shares indirectly through swaps or exchange-traded funds.

Fresh fund flows into Saudi Arabia in the initial months may be moderate - perhaps only hundreds of millions of dollars a month - partly because share valuations are currently quite high. But the announcement may nevertheless buoy sentiment, while the market opening is likely to start the process of incorporating Saudi Arabia into major equity indexes such as those run by MSCI, which will eventually attract tens of billions of dollars.

All traded stocks rose on Sunday and Saudi Basic Industries Corp (SABIC), which is expected to be a major target of foreign investors as the country's biggest listed firm, surged 9.2 percent.

It reported a 39 percent drop in first-quarter net income on Sunday that was not as large a fall as analysts had forecast.

SABIC made a net profit of 3.93 billion riyals ($1.05 billion); seven analysts polled by Reuters had predicted, on average, that SABIC would make 3.50 billion riyals. Low oil and petrochemical prices have dragged down its revenues.

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