Foreign investors buy less that 5 per cent of Saudi stocks

17/06/2015 00:31 AST

The day the world’s biggest oil exporter allowed foreign investors direct access to its stock market, they bought shares in less than 5 per cent of equities.

By the end of Saudi Arabia’s trading day on Monday, qualified foreign investors (QFIs) held seven out of 170 stocks directly, owning less than a tenth of a percentage point of each company, according to data on the Tadawul Stock Exchange website. Saudi International Petrochemical Company was the biggest winner after QFIs bought 0.02 per cent of the stock.

Anticipation had been building since July when Saudi Arabia said it will allow approved investors from outside the six-nation Gulf Cooperation Council to own local shares directly amid a push to diversify its $752 billion economy away from oil. HSBC was one of the first QFIs to trade Saudi stocks directly, it said in a statement on Monday.

“There has been no rush to acquire QFI status,” Hootan Yazhari, the Dubai-based head of Middle East and North Africa (Mena) and global frontier markets equity research at Bank of America Merrill Lynch, said by phone on Tuesday. “Many global investors we’ve met with have suggested they’re going to wait and see.”



Settlement system

The biggest issue for foreign investors is the pre-funding of trades given the current T+0 settlement cycle, Yazhari said. While the CMA said on its website that it has no intention of changing the system, the stock market is studying it, the Tadawul’s chief executive officer Adel Al Ghamdi said in an interview on Monday. T+0 refers to same-day settlement.

QFIs also invested in Arab National Bank, Rabigh Refining & Petrochemical, Mouwasat Medical Services, Dallah Healthcare, Dar Al Arkan Real Estate Development Company and Bupa Arabia for Cooperative Insurance. Their holdings in each stock is 0.01 per cent, according to the Tadawul website.

Mouwasat Medical was the only stock out of the seven to rise on Monday. The benchmark Tadawul All Share Index of equities declined 0.9 per cent, trimming its gain this year to 15 per cent, the most in the Middle East.

“Valuations aren’t cheap, so investors weren’t in a rush to move in or act quickly,” Salah Shamma, who helps manage the $223 million Franklin Mena Fund at Franklin Templeton Investments ME in Dubai, said by phone on Monday. Saudi shares carry the heaviest country weight in the fund at 30 pe rcent.

Shares in Tadawul are trading at about 17 times estimated 2015 earnings, compared to about 12 times for MSCI’s emerging markets index. That’s the gauge the the bourse aims to be part of in 2017, Al-Ghamdi said.

The Riyadh-based Capital Market Authority restricts direct trading to foreign investors with a minimum of about $5 billion in assets under management and at least five years of experience. All in all, QFIs can hold a maximum of 20 per cent of a single stock. Before Monday, foreign investors could only buy Saudi stocks via exchange-traded funds and swap agreements.

Bloomberg