Foreign investors entry to Saudi CMA ‘is a strategic decision'

03/06/2015 01:25 AST

The current atmosphere among investors in the Saudi capital market is “positive” following the announcement made by the Council of Ministers to allow foreign investors to participate in the Saudi stock market, said Eng. Ziad Aba Al-Khail, Managing Director and CEO of Aljazira Capital.

He added that this step is expected to strengthen the quality and effectiveness of the work environment for both companies and brokers, and increase the transparency in the market. In addition, it will increase the level of institutional investment especially that recent statistics indicate that individuals are responsible for almost 93% of daily trading. The index of listed companies around the world fluctuates positively and negatively reflecting the nature of the economy and financial markets in which they operate, and therefore the question arises as to who will benefit and who will lose once this law will be enacted… and what will be its impact on both individuals and brokerage companies.

Al-Khail pointed out that the foreign investors entry is a strategic decision, especially with the preset criteria and standards established by CMA to determine the qualified foreign investors eligible to enter the Saudi market, that include: a minimum of $5 billion assets under management and a minimum of five years’ experience, plus managed assets of not less than $5 billion. These regulations come in line with market expectations of attracting niche investors who are willing to enter the market by following a quality focused methodology to increase market efficiency.

It is expected that there will be a rationalization of TASI movements that are greatly influenced by negative news, whereas barely affected by positive local or regional economic news.

He added that the Saudi economy, with its magnitude and stability, is able to accommodate the largest number of listed companies, thus, the entry of foreigners, the market classification, and the ranking of brokerage companies will add to its attractiveness and development.

Moreover, the focus is expected to turn toward banks and petrochemical companies, which will position the Saudi capital market within emerging markets in 2017, attracting around $40 billion of foreign funds.

The foreign investor’s international experience will help directing the attention to successful companies, and international houses of expertise will help generate research and accurate readings of the market which will reflect positively on companies, market indicator and the decisions of some investors.

On the other hand, foreign investors need to form strategic alliances and partnerships with local investors who own the local experience, vision, and know-how of the Saudi market and the factors influencing it, which according to many analysts are the most important factors.

Saudi Gazette