After a disappointing response to the opening up of market since June last year, Saudi Arabia, the biggest regional equity market, is taking another chance.

On Wednesday, the capital markets regulator announced a series of measures to attract foreign flows, by lowering the fund size of the asset managers to $1 billion (Dh3.67 billion) from the earlier $5 billion, and also allowing a 10 per cent ownership in a single listed company, up from the current ceiling of 5 per cent. These measures would be effective from September 4.

The Tadawul index closed near 0.50 per cent lower, indicating that investors were not impressed with the decision.

“So far foreign investors have been very disappointed with the interest seen on Saudi markets, so the government wants to make the market more attractive and relax the rules. At the same time they want more players to enter the market,” Sebastien Henin, head of asset management at The National Investor, told Gulf News by phone.

In June last year, the kingdom announced a slew of measures to attract foreign institutional investors, but they were successful in attracting only a few foreign institutional investors, which currently own only 1.03 per cent of the $390 billion market.

However, Michael Bolliger UBS’ head of allocation emerging markets said the country has a long term focus, adding it won’t count this as a desperate measure. “Given the longer term focus of the transformation programme, we should also not expect an immediate change of the situation. As of now, Saudi is still heavily dependent on oil, as the rest of the region. So, I am not worried about this,” he said.

On right track

This measure could also bring Saudi Arabia one step closer to be classified as an emerging market index.

“With the current reform programme, it seems that Saudi is on the right track, although ultimately MSCI needs to decide,” Bolliger said.

Saudi Arabia earlier undertook steps to align the settlement system with the global exchanges, by making them T plus 2 by mid-2017, including introduction of securities lending and covered short-selling to the stock market,

Buying time

The decision has been taken in the backdrop of low energy prices, pressure on forex reserves and strained liquidity in the banks, but it followed the National Transformation Plan announced in late April.

“The main concern portfolio investors have at the moment is with tight liquidity in the banking system. When the concern lessens, say, stabilising and increasing crude prices, measures taken for further fiscal consolidation, privatisation, etc, portfolio investors will look at the Tadawul with more enthusiasm,” Sanyalaksna Manibhandu, director Research, National Bank of Abu Dhabi Securities said.

Fund managers say investors would take a closer look at the Tadawul index only after stability or recovery in oil prices.

“It is worth keeping in mind that this came at a time when the global community was trying to reduce energy exposure in their portfolios; that’s important to keep in mind when assessing the “success” of the opening up. The current global monetary policy backdrop and the recovery in energy prices since February buys more time to authorities in the region. It will be crucial to maintain the reform momentum even if external pressure abates,” Bolliger from UBS said.

Factbox: Highlights

* The CMA lowered the fund size of the asset managers to $1 billion from the earlier $5 billion * The regulator also allowed foreign investors to own just under 10 per cent ownership in a single listed company, up from the current ceiling of 5 per cent

* Scrapped ceiling of 10 per cent on combined ownership by foreign institutions of the market’s entire capitalisation

* Sovereign wealth funds and university endowments will be allowed to invest under the new rules

* The regulations also include the option for qualified foreign investors to engage with either a Saudi or non-Saudi portfolio manager to oversee their investments, including those from the six-nation Gulf Cooperation Council (GCC)

Siddesh Suresh Mayenkar - Gulf News

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