The rise of Saudi Arabia’s bourse may pause on Sunday after the Kingdom’s stock market regulator published on Thursday restrictive draft rules for direct foreign ownership of shares – though the market had largely expected a conservative approach.
The Capital Market Authority proposed limiting total foreign ownership of the market’s value to 10 per cent, and to cap it for each listed company at five per cent for a single foreign investor and 20 per cent for all foreign institutions combined.
The draft rules also require foreign funds to have at least $5 billion of assets under management, and investment experience of no less than five years in order to buy Saudi stocks.
Such strict rules – which the authorities will now discuss with the market before finalising – indicate the CMA is likely to allow only slow inflows of foreign money when the region’s largest stock market opens up early next year.
The proposed 10 per cent cap on the market’s value includes shares already bought indirectly by foreigners via swaps, which may now account for almost two per cent of the market. Some fund managers fear the rule could be difficult to implement, creating periods of uncertainty during which funds would have to hold back from trading.
However, any pull-back by the market is unlikely to be large; the draft rules are largely in line with expectations. Saudi Arabia’s index climbed 0.2 per cent to a new six-year peak of 10,735 points last Thursday, its fifth consecutive rise.
Elsewhere in the region, markets are likely to continue consolidating on moderate volumes in the absence of strong positive catalysts.
Globally, the environment is soft, as most markets pulled back on Friday because of concerns over Ukraine, which accused Russia of launching a “direct invasion” of its territory.
But stocks in the Gulf, where most currencies are pegged to the dollar, could benefit from the greenback’s strengthening on the back of Federal Reserve Chair Janet Yellen’s speech on Friday in which she said the Fed may have to raise rates sooner and more quickly than expected.