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Saudi stock market offers access for investors
The proposals call for the creation of a new layer of management to coordinate the multitude of government entities that supervise the stock market, thereby eliminating ambiguity that has sometimes disheartened potential investors. According to the Finance Ministry, foreigners may be able to freely conduct transactions on the Saudi market as early as January 1, 2001.
"We see investment opportunities in a number of sectors in the Saudi economy: communications, gas, and electricity, possibly water. And, of course, petrochemicals, which has been there all the along," says Alan Thompson, president and chief executive officer of Riyad Bank. "These are primarily infrastructure type of investments, but I think that's where you will see in the short term the most opportunities."
Rising oil prices and active efforts by the government to reform the economy have strengthened the Saudi stock market, boosting share prices this year an average of 30 percent.
"But will foreigners invest in Saudi stocks? The answer is a resounding, `yes,'" says Brad Borland, chief economist at Saudi American Bank. "Even in a world where it is still much easier for the smallest investor anywhere to buy shares of Microsoft than to buy SABIC [Saudi Arabian Basic Industries Corporation], still there are many pockets of foreign money that will invest in the Saudi market."
Borland notes that likely investors in the stock market include many of the six million expatriates who live in Saudi Arabia and work for the very companies listed on the exchange. He says many foreign residents of Saudi Arabia have lived there for decades and would welcome a chance to buy stocks. "They know the companies well, know the markets and the economy well, and already have accounts at the banks that offer the mutual funds," says Borland.
According to Borland, foreign institutional investors, such as pension funds and foreign mutual funds that invest in emerging markets and have billions of dollars in assets under management, will invest more in the Saudi market. He also predicts individual investors the world over will likely want to invest in the Saudi market.
"Those who know nothing about the Kingdom may do so just as a play on high global oil prices," says Borland. "As the Saudi banks develop stronger distribution outlets around the world for their funds, the number of individual investors will grow."
"Fundamental forces are aligned in Saudi Arabia's favor and suggest continued strength in the market," says Borland. "The economy is undergoing modernization and reform, so that if 1999 was the year of [lower] oil prices, then 2000 will be the year of change. Some of this reform, such as privatization, will result in interesting new listings on the stock market. Other changes, such as accession to the WTO, will grow the economy faster. Oil prices remain strong and are likely to continue firm. The Gulf region is enjoying relative stability, and of particular note are the much-improved relations between Saudi Arabia and Iran. More broadly, renewed progress in the [Middle East] peace process will give comfort to outside investors about regional stability. Finally, now that the Asian economies are turning the corner, investor money is starting to flow again, albeit modestly, back to emerging markets around the globe."
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Table of Contents Crown Prince Abdullah: A leader with a global vision |
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Recently, Saudi Arabia's Ministry of Finance has been studying proposals that would allow foreigners, whether resident in Saudi Arabia or not, to invest in the Kingdom's stock market through purchase and sale of mutual funds that trade in Saudi stocks. At the moment, foreign investors wanting to buy Saudi stocks have to accept shares of a closed-end mutual fund, the Saudi Arabian Investment Fund (SAIF).