Saudi’s stock market to further ease restrictions on foreign investment

Saudi Arabia will ease restrictions on foreign investment in its securities markets next month, sooner than previously indicated, in an effort to attract more institutional money into its bourse, the regulator said on Wednesday.

With oil prices sagging and the economy slowing, Saudi authorities are keen to attract more foreign capital into the kingdom. The stock market opened to direct investment by foreign institutions in June last year, but all types of foreign investor still own only 1.03 per cent of the $390bn market.

In May, the Capital Market Authority (CMA) announced it would ease ownership limits and minimum qualifications for overseas institutions by mid-2017. In a statement on Wednesday, it said the reforms would take effect on September 4.

Among the reforms, each asset manager will only need to have a minimum of $1bn of assets under management globally to qualify as a foreign institutional investor in Saudi Arabia, instead of the current minimum of $5bn.

Each foreign institutional investor will be allowed to own directly a stake of just under 10 per cent of a single listed company, up from the current ceiling of 5 per cent.

Other restrictions will be scrapped, including a ceiling of 10 per cent on combined ownership by foreign institutions of the market’s entire capitalisation. All foreign investors combined will still be limited to owning 49 per cent of any single firm.

At the end of 2015, only nine foreign institutions had obtained licences to invest directly in the Saudi market. Fund managers have said that while the reforms are welcome, the number of foreign investors will not necessarily rise sharply when restrictions are eased, given slowing growth and inefficiencies in the Saudi economy.

In May, the CMA also said it had approved the introduction of securities lending and covered short-selling to the stock market, which would give investors more options to hedge their purchases against downturns, while the exchange would introduce during the first half of 2017 the settlement of trades within two working days of execution.

The regulator did not say on Wednesday whether the timetable for these reforms would also be accelerated.