Saudi bourse opening could fuel international partnerships – JP Morgan

The opening of Saudi Arabia’s stock market to foreign investment could help local firms form more partnerships with international companies, an expert has said.

The Arab world’s largest stock market is set to open up to foreign investors on June 15.

“Opening the Saudi Arabia market to foreign investors will be more than just an inflow of funds, it will lead to a general shift of attention to Saudi companies and potentially lead to new business ventures and further integration of Saudi businesses into international markets,” said Tara Smyth, head of Investments for the Middle East at J.P Morgan Private Bank.

“Our clients view this as an opportunity for their businesses to expand and form new international partnerships.”

She added that JP Morgan’s clients viewed the bourse opening as the market reaching a certain level of maturity.

“Investors are keen on capturing the opportunity behind the growth in the emerging market consumer and investing in Saudi Arabia is a prime way to play that opportunity with a booming population, wealth creation, and the biggest slice of the pie when it comes to consumption in the Middle East.

Furthermore there is also an added benefit of the Saudi riyal being pegged to the US dollar, bringing very limited currency risk for the dollar- based investors, Smyth said.

Saudi Arabia’s willingness to welcome the foreign funds has pleased many investors but experts have warned not to expect a large inflow of foreign capital.

But the Kingdom still faces a number of challenges in attracting bulk foreign money.

Smyth said the country might need to improve its standard of corporate governance in an effort to drive the confidence of foreign investors in the market.

Meanwhile, imposition of strict caps on foreign ownership could also further dampen investor appetite when Tadawul opens up later this month.

Saudi Arabia could be the recipient of billions of dollars in investment in the future if the opening will prompt its entry into the MSCI’s emerging market index.

But the country is still at least two years away from achieving the inclusion.

Despite such issues, the economic experts hail the step as a means for the country to modernise and diversify.

As economist Nasser Saidi wrote in a recent opinion editorial in Gulf Business: “The move should be a harbinger of further reform providing wider market access and establishment of foreign companies and persons via deep legal and regulatory reforms, public private partnerships, and privatisation and labour market reforms to create a dynamic vibrant economy able to create jobs for generations of young Saudis, both women and men.”