Saudi’s Tadawul, the region’s biggest exchange, expects foreign investment to grow

Saudi Arabia’s listed companies could see holdings by foreign investors rise to 10 per cent when their shares are included in index providers MSCI and FTSE’s emerging-market indices, the chief executive of Tadawul told Reuters on Monday.

Tadawul is the Middle East’s largest exchange and Saudi Arabia’s main exchange. It has a total market capitalisation of around $541.3bn, with a free float of about 40 per cent.

Saudi shares on Monday joined the FTSE Emerging All Cap Index with a weighting of 2.9 per cent. In May, Saudi shares will join the MSCI Emerging Markets Index.

Khalid al-Hussan said he expected equities on Tadawul to attract $5bn of passive fund inflows after the FTSE Russell inclusion. Foreign investors currently hold 5.9 per cent of Saudi shares.

Active foreign investors in the market have been increasing since the beginning of the year, and the number of qualified foreign investors registering to trade on the Saudi exchange is increasing everyday.

Hussan said he estimates the Saudi exchange to see “around $5bn of passive inflows coming from FTSE and around $10-11 from MSCI and some inflows from S&P.”

Foreigners have been net buyers of Saudi stocks since the start of the year, ploughing more than $2.1bn year-to-date into the Saudi market. The Saudi index is up nearly 9.6 per cent, outperforming its Gulf peers.

“You have to applaud the Saudis for what they’ve done over the past year in relation to opening up the market,” said Fadi Al Said, managing director and head of the MENA investment team at Lazard Asset in Dubai.

“I think the opening up the market, the QFI process, has gone through an evolution of simplifying the process,” Al Said said.

Index provider MSCI incorporated shares of United Arab Emirates and Qatar companies into its emerging market index in 2014.

Foreigners excluding strategic investors own less than 2 per cent of Saudi stocks, analysts have said. Currently, foreign ownership of listed stocks is capped at 49 per cent.

Hussan said it was too early to discuss raising the cap, given current ownership levels and size of the market.

“We would love that challenge to happen in the market and it will show that our market is very attractive, but until then I don’t see that the 49 per cent is an obstacle to international investments, taking into the account the size of the Saudi market.”

The Saudi main equities index closed up 1 per cent on Monday.

Tadawul is expected to introduce index futures this year, pending the feedback it receives from investors to the rules and regulations of trading derivatives, which will be offered for public consultation over next two weeks, he said.