16/06/2015 07:46 AST
Saudi Arabia, which allowed foreigners direct access to its equities for the first time yesterday, aims to be part of MSCI Inc’s emerging-markets index in 2017, according to the chief executive officer of the stock exchange.
“Joining MSCI’s emerging-markets index in 2017 is ultimately our target,” Adel al-Ghamdi said in an interview in London yesterday. “Once foreign investors have had a bit of experience interacting with the framework, they will provide sufficient feedback to MSCI.”
The kingdom’s stock market is opening up as the nation diversifies its $752bn economy away from oil. Before yesterday, investors from outside the six-nation Gulf Cooperation Council bought Saudi shares through equity swaps and exchange- traded funds. The Riyadh-based Capital Market Authority finalised new rules in May.
The earliest date that Saudi Arabia could be included in MSCI’s emerging-markets index is June 2017, Robert Ansari, executive director and the head of client coverage team at MSCI in the Middle East, said by phone yesterday. The index provider will seek feedback from foreign investors on the accessibility of the kingdom’s market before adding the MSCI Saudi Arabia Index to its review list for potential inclusion in its developing-country gauge, it said this month.
Total foreign investment in the Saudi stock market is expected to climb to about $28bn before the inclusion from $7bn, Jamal al-Kishi, the CEO of Deutsche Securities Saudi Arabia, said in a Bloomberg TV interview. It may rise to about $35bn after the inclusion, he said.
The new rules restrict direct trading to institutional investors with a minimum of about $5bn in assets under management and at least five years of experience. Holdings in a single equity for one qualified foreign investor are capped at 5%, while QFIs holdings in a single stock is capped at 20%. All in all, QFI holdings won’t exceed 10% of the whole market.
Foreigners - both resident and non-resident - will be able to own as much as 49% of a single stock. The rules “will evolve as we go forward,” al-Ghamdi said. “Nothing is set in stone.”
Foreigners investing in the Tadawul All Share Index are banned from owning stocks in six companies, most of which have assets in Makkah or Madinah, cities where non-Muslims are barred from entering. The companies are Makkah Construction & Development Co, Jabal Omar Development Co, Madinah-based Taiba Holding Co, Knowledge Economic City Co, Saudi Real Estate Co and The National Shipping Co of Saudi Arabia.
The Tadawul has no plans to add companies to that list, al-Ghamdi said. “I don’t think there will be many more if indeed there will be any at all,” he said.
Al-Ghamdi expects the Arab world’s biggest economy to post a budget deficit this year and probably in 2016. “It’s potentially wise to fund that deficit through the issuance of a Saudi government development bond,” he said.
Saudi Arabia will post a budget deficit equal to 20% of economic output this year, as the government pursues spending plans in the face of an oil slump that has slashed revenue, the International Monetary Fund said. The kingdom has been burning through its reserves at a record pace to finance government expenditure.
The CMA plans to make the process of structuring bonds that comply with the Shariah ban on interest easier, al-Ghamdi said last month. The kingdom’s debt capital market needs improvement, he said.
Bloomberg
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