Saudi Arabia stock markets comments

Bassel Khatoun, Head of MENA Equities, Franklin Templeton Investments Middle East.

The opening of the Saudi Arabian equity market to foreign direct investment is a massive step forward for the region. As the largest equity market in MENA, this will certainly put the region back on international investors’ radar and is likely to be transformative for regional equities. From a regional perspective, Saudi Arabia’s economic output, the size of its equity market and its demographics all vastly outstrip those in the remainder of the GCC countries. Saudi Arabia’s macro-economic fundamentals bring scale to the attractive dynamics that make the GCC region an interesting and differentiated addition to global portfolios. The market gives investors exposure to emerging market-type growth coupled with low-risk sovereign credit quality.

Liberalisation of the Saudi market may pave the way for future inclusion of the Saudi market in the MSCI Emerging Market index. Entry into the MSCI EM index would likely boost trading volumes, enhance market liquidity and potentially bring down transaction costs through improved scale effects.

Salah Shamma, Head of Investments – MENA Equities, Franklin Templeton.

Opening up to foreign institutional investors holds considerable advantages for the Saudi market. The Tadawul is dominated by local retail investors, who account for over 90% of volumes traded, while foreigners represent just over 1% of the total. The opening up of the market will likely bring with it a higher degree of institutionalisation that will add sophistication and maturity to the market in time. A more sophisticated investor base would promote the efficient allocation of investment capital within the Saudi Arabian economy. In the medium term, such measures are likely to lead to an increase in initial public offerings (IPOs), thus leading to a much-needed deepening of the equity market in the region and improved sentiment from global investors.