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Saudi stock market to open to foreigners in 2014, predicts HSBC

Published: Updated:

Saudi Arabia’s stock market is set to open to foreign investors as early as 2014, according to predictions by market analysts and HSBC.

Foreign investors are currently prohibited from investing directly in Saudi-listed shares, but an expected liberalization of the rules could see tens of billions of dollars of outside money pumped into the local market.

The banking giant HSBC expects Saudi Arabia’s equity market to open to foreigners as early as next year.

“There’s tremendous appetite,” Simon Cooper, chief executive of HSBC’s Middle East business, told Bloomberg. “I’d say 12 to 18 months. Steps are being taken at the appropriate places to open the market up… I think there’s a strong desire to see it happen from both sides - buyer and seller.”

Foreigners based outside the GCC are currently only allowed to invest in the local market through equity swaps and exchange-traded funds. Saudi Arabia last year signaled it would open the market on a gradual basis, according to media reports.

Market analysts told Al Arabiya that they too expect Saudi Arabia’s stock exchange to open its doors to foreigners, with one predicting such a step could be taken as early as next year.

“I wouldn’t expect it this year – but next year, why not? The trend is there,” said Petr Molik, the head of the research division at Menacorp, based in the UAE.

“It would definitely lead to additional capital flowing into the market. It will be win-win for existing shareholders. The influx of foreign investment will drive prices higher,” he added.

Molik said however he expected restrictions placed on the level of foreign ownership in Saudi companies, as is the case in other Arabian Gulf markets such as the UAE.

“I don’t expect it will fully open. They would put in place some restrictions on foreign ownership. I would expect some limits – 30, 40 or 50 percent maximum ownership [in individual companies].”

Molik also said any market reforms would stop short of allowing hostile takeovers of Saudi firms by foreign investors. “I wouldn’t expect in five to 10 years for it to be as liberalized as the US or European markets,” he said.

Some analysts pointed to the appointment of Mohammad al-Sheikh as the new head of Saudi’s Capital Market Authority as being a positive sign for a possible liberalization of the sector.

“Mohammad al-Sheikh has a lot of experience that would be perfectly suited for opening up the market,” said Trevor McFarlane, a senior editor at the Economist Intelligence Unit (EIU), based in Dubai.

McFarlane said he too expects the Saudi market to open to foreigners – but was reluctant to predict when.

“All market analysts do expect this to happen,” he said. “But these things can take some time. It will happen – but the question is, when?”

The “buoyant” economy in Saudi Arabia would be a draw to foreign investors, said McFarlane. “If the market was to open up to foreign investors, it could have the potential to bring in tens of billions of dollars of foreign investment.”