Saudi Arabia : A new frontier for stocks

Saudi Arabia is finally to open its $530bn stock exchange to foreign investors on 15 June. The market is the largest in the Middle East and boasts some of the region’s biggest companies, but has hitherto only been accessible through derivatives sold by Saudi intermediaries.

The new market rules, first revealed last year, are set to attract hundreds of millions of dollars in foreign cash, helping Saudi Arabia develop its private sector and diversify its oil-dependent economy (the oil sector accounts for 55% of GDP).

Still, Western investors seeking a new “frontier” market shouldn’t get too excited, says The Economist. The new rules are “cautious”. Foreign investors must manage $5bn in assets to gain entry. They can’t own more than 49% of a company, and a foreign individual investor’s share may not exceed 5%. Total foreign investment in the Saudi Arabian stock exchange can’t exceed 10% of its value.

There are “plenty of risks”. The market is volatile, needs reforms to prevent big local investors manipulating it, and may be affected by lower government spending if oil prices remain subdued. Observers hope this may be the prelude to further liberalisation. “But little in Saudi Arabia happens quickly.”