IMF says Tadawul changes will deepen equity in region

05 May 2015

Big firms may also start investing in Dubai and Qatar

  • Saudi Arabia move to allow foreign investors on Tadawul will boost equity
  • Big firms may start looking at other regional markets int he GCC
  • New investment laws have just be passed in Riyadh

The IMF says Riyadh’s move to lift bars on direct foreign institutional investors trading on its stock market, the Saudi Stock Exchange (Tadawul), will deepen the region’s equity market.

“The impact of that is that we believe this will help to deepen the equity market,” said Masood Ahmed, director of the Middle East and Central Asia department at the Washington-based IMF.

He was speaking at the announcement of the fund’s regional economic outlook in Dubai on Tuesday. “At the moment, as you know, most of the equity has been held by retail investors or by government or public institutions. This will help to broaden it out. We also think that as a result it will make investment there more attractive.”

He added that the IMF can’t predict how much investment the move will bring, saying, “We haven’t got in our minds, yet, a number in terms of what the consequence might be in terms of the volumes. It is worth remembering that this comes with some safeguards or limits, if you like. It is 10 per cent of the overall market and 20 per cent of individual companies. So in that sense the possibility of this leading to very large and volatile capital flows is a bit contained.”

Chirag Shah, chief strategy and business development officer at the Dubai International Financial Centre Authority, said, “The addition of another big market in the pool will attract more interest in the region.”

Big firms may start looking more at investing in the region’s markets, including Qatar and Dubai, he said. It could also encourage more local companies to list.

Tim Fox, chief economist at Emirates NBD, agreed, telling MEED, “As the panel mentioned, I think there are great opportunities. I think it will attract investment not only to Saudi Arabia, but it will raise the region in the eyes of markets globally. That should be to the benefit of the region as a whole.”

Saudi Arabia’s Capital Market Authority yesterday announced the rules that will govern foreign investment in the Tadawul, the kingdom’s stock market which has a capitalisation of more than $575bn, the biggest in the region. The rules, which take effect on 1 June, permit only qualified foreign investors (QFIs) including banks, brokerages, fund managers and insurance companies with at least $5bn in assets under management to invest in the Saudi stock exchange.

Foreigners will be able to own up to 49 per cent of a single stock and institutional foreign investors with a minimum of SR18.75bn ($5bn) under management will be allowed to invest directly.

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