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Saudi Arabia has set a date for the opening of its stock market to foreign investors. The nation’s Capital Market Authority recently announced that the country’s only stock exchange, Tadawul, will allow direct international purchases of its market shares starting June 15 of this year.
The market opened in 2007 and has since grown to a size of $530 billion with 161 traded entities and is the largest exchange in the Middle East. The country hopes that opening the market to foreign investment will help to diversify its economy. The country currently relies heavily on oil, and this move is expected to bring billions of dollars into other areas of the private sector.
Foreign investors can currently only purchase Tadawul shares indirectly through “swaps” or exchange-traded funds (ETFs). The removal of such barriers will make the market freely available to overseas buyers. Rules for foreign participation will be published next month. However, a draft of the rules from last August indicated that a single foreign investor may only be able to own up to five percent of a listed company and that foreign institutions combined could not own more than twenty percent of a listing on the exchange.
The market as a whole has increased at a rate of roughly 7% since 2010. The market faced struggles in the second half of 2014 due to falling oil prices but is gradually recovering. The economy as a whole has expanded at an average rate of 6.4 percent in the past four years, despite surrounding countries experiencing political and financial turmoil.
The opening of this exchange is clearly good news for global investors. As a growing frontier market, foreign firms should prepare themselves for investing in Saudi Arabia.
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