Essay About Saudi Arabia Stock Market Opens And Kingdoms Stock Market

Saudi Stock Market
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Article1 : Saudi Arabia Stock Market Opens to Foreigners
Columnist : Brad Bourland Chief Economist,
Saudi American Bank
In early November the Saudi Finance Minister announced that
foreigners, whether resident in Saudi Arabia or not, could now invest in
the Kingdoms stock market through purchase and sale of mutual funds
that trade in Saudi stocks. Before this, the only option available to
foreigners who wanted to invest in Saudi stocks was a single closed-end
mutual fund, the Saudi Arabia Investment Fund (SAIF), traded in
London. As a “closed-end” fund, SAIF limited foreign money in the
Saudi market to the $250 million initial size of the fund when launched in
1997.
The combination of this news, the continued strength of oil prices, and
the drumbeat of economic reforms being announced in Riyadh, has
given a strong boost to the Saudi market. Before the Ministers
announcement, the market had already moved up about 20 percent for
the year so far. Since the announcement, the market has added another
10 percent gain so the market at this writing is up over 30 percent in
1999. Volumes of trading have also grown. Through mid-November,
days when 6 million shares have traded have been common, whereas
the averages trading day was under a million shares for the first half of
the year.
The market reaction is not yet as a result of foreign money flowing into
the market, although the banks were allowed to immediately start selling
to foreigners and some have begun to do so. Rather, the rise is a result
of Saudi investor confidence and anticipation of the impact of the inflow
of foreign money.
But will foreigners invest in Saudi stocks? The answer is a resounding,
“yes”. Even in a world where it is still much easier for the smallest
investor anywhere to buy shares of Microsoft than to buy Sabic, still
there are many pockets of foreign money that will invest in the Saudi
market.
First, many of the 6 million expatriates who live in Saudi Arabia and
work for the very companies listed on the exchange will invest. Many
foreign residents of Saudi Arabia have lived here for decades and would
welcome a chance to buy stocks here. They know the companies well,
know the markets and the economy well, and already have accounts at
the banks that offer the mutual funds.
Second, 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. Most of these institutional investors track their performance
against an index, such as the Morgan Stanley Capital Index (MSCI), or,
the International Finance Corporation Global Index (IFCGI). The Saudi
stock market now represents 2.5 percent of the IFCI, so any fund
manager that tracks the IFCGI would have to have 2.5 percent of his
assets invested in the Saudi market to be “evenly weighted” in Saudi
Arabia against his benchmark. The MSCI is the much more common
index used as a benchmark for large institutional investors, and Saudi
Arabia will not be included in that index until foreigners