Go shopping for stocks in Saudi Arabia

Fund managers are “abuzz with excitement”, says Simeon Kerr in the FT. From January 2015, Saudi Arabia will allow foreign-investors direct access to its stock market for the first time.

The admission criteria have yet to be finalised, although there has been talk of a minimum of $5bn of assets under management. Overseas investors have hitherto had to use local intermediaries to tap the market.

The equity market in the Gulf’s heavyweight economy has a capitalisation of around $530bn, about the size of Russia’s. It is also more liquid and attracts more flotations than its regional peers.

“Breadth is another selling point,” notes Shuli Ren in Barron’s. The top-ten listed firms comprise around 40% of the market, so there is plenty of room for small and medium-sized firms.

The bourse also boasts a comparatively wide spread of sectors, including petrochemicals, telecoms, and financials. By contrast, energy accounts for over half of the Russian market, while financials make up 80% of the United Arab Emirates’.

Transparency is already deemed better than in many peers, and companies will have to improve their governance further if they are to raise funds from foreign investors. Foreign cash will also help the economy diversify away from oil. And then there’s the benign economic backdrop: GDP has risen by 48% since 2010.

The market is pricey on 2.4 times book value, notes Lex in the FT. But investors keen on emerging markets “drenched in hydrocarbon money” are likely to pay up for access – especially as they are now worried about being “frozen out” of Russia.

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