Traders look at screens inside the offices of the Tadawul All Share Index in Riyadh (file). Saudi Arabia’s plan to open up its stock market to foreigners is not under threat by the royal transition as the late king’s successor signals he will continue the nation’s economic policies.

Bloomberg/London

Saudi Arabia’s plan to open up the region’s biggest stock market to foreigners is not under threat by the royal transition as the late King Abdullah’s successor signals he will continue the nation’s economic policies.
The former monarch — who died yesterday at the age of 90 — helped drive a 26% stock rally in the past four years with a $130bn spending plan to boost non-oil industries. King Salman, Saudi Arabia’s new ruler, said he will maintain the policies of his predecessor, while a royal decree affirmed the country’s oil minister won’t be replaced.
“We expect a smooth transition and we don’t think this will affect the market opening at all,” Viktor Broczko, a London-based senior money manager at Advance Emerging Capital, said by phone.
“Given the drop in oil prices, the Saudis will probably want to be more constructive than ever to keep things progressing as smoothly as possible.”
The world’s biggest oil exporter said in July it will open its $484bn equities market to foreigners in the first half of the year, paving the way for inclusion of its stocks in MSCI indexes. The plan coincides with a surge in volatility to a five-year high after the benchmark index swung from a bear market to bull market late last year amid a plunge in oil prices.
The Saudi riyal, which is pegged to the US dollar, fell to the lowest level since October 2008, and forwards weakened. The depreciation may be temporary as the succession plans are expected to be smooth, Bloomberg strategist Mark Cudmore said.
“As long as the economy shows evidence of growth in the non-oil sector, I don’t think foreign investors will be perturbed,” Yong Wei Lee, head of equities at Emirates NBD Asset Management in Dubai, said by phone.
“There may be an initial knee-jerk reaction in the market over how smoothly the transition will progress, but it will be nothing alarming. I don’t think there will be any change to the plans to open up the stock market to foreign investors this year.”
Investors from outside the six-nation Gulf Co-operation Council aren’t allowed to buy shares directly and have to get access to the market through equity swaps and exchange-traded funds. MSCI resumed coverage of the stock market in 2012, stoking bets the nation may get emerging-market status at the index provider.
Under Oil Minister Ali al-Naimi, Saudi Arabia maintained its crude output to preserve the kingdom’s market share, even as prices plunged by half in 2014 amid a supply glut.
The benchmark stock index has gained 1.1% this month, after four months of losses. The market was closed yesterday for the weekend.
“We remain positive in the long term, but we still need to see what Salman will do,” Broczko of Advance Emerging said. “We don’t think this will have an effect on MSCI inclusion.”