03/11/2015 07:15 AST
Saudi Arabia's bourse hopes to attract more foreign investors in coming months and join MSCI's index of emerging market bourses by mid-2017, the chief executive said on Monday.
In June, the Saudi stock exchange, the Tadawul, became one of the last major emerging markets to let foreigners buy shares directly. Take up has been slow, with qualified foreign investors (QFIs) holding only 0.03 percent of shares listed on the $433 billion bourse.
"We are looking essentially for quality not quantity, but of course the quantity helps, because what we want is diverse investment behaviour," Adel Al-Ghamdi told Reuters on the sidelines of a capital markets day in London.
Registration requirements, the settlement cycle and investors' understanding the QFI rules were some of the reasons for the slow pick-up, said Al-Ghamdi.
"It is still very early days ... and the beginning of the third quarter was very slow ... I think we will see a pick-up in the fourth quarter, and also in the new year," he said, adding he aimed for foreign investors to hold around 5 percent of shares some time over the next 12 months.
Since June, nine QFI licenses have been granted to foreign investors with more in the pipeline, al-Ghamdi said, though he declined to give any further details.
BlackRock, Citigroup, HSBC and Ashmore Group hold QFI licenses, which require investors to have at least $5 billion of assets under management and a five-year investment track record.
"We are in regular discussions with MSCI to see what it is that we can do to help this process (of joining the emerging market index)," Al-Ghamdi told Reuters on the sidelines of a capital markets day in London, adding he was also speaking to other index providers.
"The low hanging fruit in my mind are potentially the registration requirements, and to simplify those, and some of the other requirements that we have, in terms of ownership restrictions - and in some areas, not all, they could be relaxed," he said.
Saudi Arabia's Shura Council - which advises the government on legislation - is expected to meet on Monday to discuss a report by the stock market regulator on trying to have the Saudi market join MSCI's emerging markets index, the official Saudi Press Agency reported on Thursday.
Earlier in October, the Capital Market Authority said it would be open to relaxing rules on foreigners investing directly to help it get included in global indices.
Around $1.6 trillion of investors' money were benchmarked against MSCI's emerging market indexes by end-March. MSCI launched standalone equity indexes for Saudi Arabia on June 1, along with a number of other Middle Eastern regional benchmarks.
Aal-Ghamdi said he hoped to see a double digit number of discretionary stock market debuts by family-owned companies.
"There is a tremendous pipeline, but of course those who want to launch are waiting for valuations to improve," he said, adding only three of the eight IPOs expected for 2015 had materialised. The stock market has lost more than 15 percent since the start of the year.
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