Saudi stock market opens to foreign investors
Saudi Arabia has finally opened its stock market to international investors, and, combined with the foreign investment law, which allows 100 per cent foreign ownership of projects and real estate, the total value of new projects this year looks set to hit £200 billion.
The Kingdom has an impressive record of political and economic stability and has a world class infrastructure. It also has the biggest oil reserves in the world, with 25 per cent.
Total property investments in Saudi Arabia, which represents the largest construction market in the Middle East, are estimated at around £140 billion. According to a report by Business Monitor, the total value of new projects is likely to reach over £200 billion this year.
A number of ambitious infrastructure projects are scheduled to be built in the country, thanks to the partly to the extra liquidity generated from high oil revenues and regional governments.
Saudi Arabia is currently try to attract more foreign direct investment and have now permitted foreign companies to own 100 percent of property and projects and to bid for government contracts.
Furthermore, since 2005, corporate taxes have decreased from 45 per cent to 25 per cent.
To further attract investors, local authorities have partnered with Naseba, an international business information company, in hosting the Real Estate Investment World Summit in Riyadh on October the 19th to the 20th.
The gradual process of opening the Saudi stock market, which is the largest in the Middle East, to foreign investors has taken a significant step forward with the announcement that non-residents will be entitled to trade in local stocks through Saudi intermediaries.
The news prompted an immediate rally in the market-which has lost ground so far this year-in apparent anticipation of a surge in foreign interest.
Under the new regulations, foreign buyers can enter into transactions known as swap agreements with local branches of investment banks.
The arrangement lets investors take advantage of movements in Saudi shares even though they are prohibited from owning them outright.
According to a note issued by EFG-Hermes, a Cairo-based investment bank with a long-standing presence in Saudi Arabia, the regulations covering the swaps are in place.
EFG-Hermes indicated that swap agreements must be fully financed and covered at the time of purchase, and are valid for a maximum four years. Voting rights are retained by the Saudi parties, but they are not permitted to exercise these rights.
No limits have yet been set on the proportion of free-float shares that a foreign investor may own in a company or sector.
Major investment banks say they have begun trading under Saudi's new rules.
HSBC Saudi Arabia Chief Executive, Tim Gray, said, "You won't necessarily see a flood of money coming in, but I think fund managers will be looking to see which stocks represent good value.
"Over time, you will see foreign investors representing a reasonable percentage of the market. What that share will be is hard to tell," Mr Gray added.
Picture by Michael (mx5tx)