Saudi Arabia’s economic priorities are changing with the “lower-for-longer” reality about oil prices. For the second time in 15 months, the kingdom is easing rules on foreigners investing in its $400bn stock exchange.
From September 4, overseas funds with at least 3.75bn riyals ($1bn) – deep down from the current threshold of $5bn – under management will be allowed to invest in Saudi stocks. Individual foreign investors will be permitted to own 10% of shares outstanding of a company, double the existing limit. While sovereign wealth funds and university endowments will be now welcomed, qualified foreign investors will be able to take part in IPOs from January.
Saudi Arabia started opening up the Tadawul bourse, one of the world’s least accessible markets, to direct foreign investment in June 2015 but with stringent restrictions. As of now, overseas investors own just 1% of outstanding shares, according to Bloomberg data.
The 50%-plus slump in oil prices in the past two years has focused the world’s biggest crude exporter on life after oil. As part of the long-term drive to diversify the economy, Saudi Arabia plans to sell shares in Saudi Aramco, the world’s most valuable company, possibly in early 2018 and deploy the proceeds through its planned sovereign fund estimated to be worth $2tn (the $825bn Norway SWF is currently the world’s No 1). If part of the Aramco sale takes place in the kingdom, the Tadawul will need a deeper investor pool to help digest the largest IPO in history.
Amid a plan to almost double its size, the Tadawul is aiming for an inclusion in MSCI and FTSE Russell indexes, hoping to attract billions of dollars of passive inflows. If the proposed reforms are carried out, FTSE inclusion is possible in 2018 followed by MSCI in 2019, according to Mohamad al-Hajj, Dubai-based Mena equity strategist at EFG-Hermes UAE.
What’s now in store for the bourse that has slipped 12% this year? Some investors want more detail and greater clarity about the new rules.
The Saudi market regulator has still way to go too. While the exchange is the biggest in the Arab world, it ranks fifth out of the six Gulf peers for quality of regulation, according to World Economic Forum data in May 2015.
Make no mistake, nobody doubts the prospects of the Tadawul, one of the world’s last major markets to open up. The move could also be benefiting the Gulf region in the long run. Investors “will look at the region with more interest and automatically countries like the UAE and Qatar will benefit,” according to Arindam Das, regional head of HSBC Securities.
In a wider sense, policy makers in every Gulf country now know for sure the oil windfall the region has been accustomed to for decades is a thing of the past. Saudi Arabia’s bold economic overhaul, championed by Deputy Crown Prince Mohammed bin Salman, bodes well for the kingdom’s non-oil future. But its success will require moving fast on the kinds of economic, political and cultural reforms with greater transparency and urgency.

Make no mistake, nobody doubts the prospects of the Tadawul, one of the world’s last major markets to open up