Saudi Arabia's stock market, valued at USD 585 billion, opened up to direct foreign investment for the first time today, as the kingdom seeks an economic boost amid low global oil prices.
The opening of the Tadawul Saudi Stock Exchange allows companies, particularly those that are not in the oil business, to raise money straight from foreign investors, with the goal of expanding businesses, diversifying the economy and creating more jobs for the kingdom's growing population.
Before Monday, foreigners only could access the market indirectly, through a local Saudi institution, which was costly and complicated.
The stock exchange's estimated value makes it the biggest in the Middle East. Petrochemical firms make up a fifth of Tadawul, with heavyweights like Saudi Basic Industries Corp among those listed.
The move comes at a crucial time for Saudi Arabia, whose revenue has suffered from a plunge in oil prices over the past year.
That lower revenue could constrain government spending, which in turn would affect the many companies relying on government projects. The kingdom has been drawing from its robust foreign reserves to maintain spending.
An influx of foreign money could "help to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves," says the London-based analysis firm Capital Economics.
The firm says Saudi Arabia has been traditionally cautious about foreign influence in its political and economic affairs.
Its decision to open its stock market could be seen as part of a broader liberalization effort in the kingdom's economy. The socially and religiously ultraconservative country is already awash in some of the world's biggest brands and many multinational companies have their factories and facilities there.
However, foreign investors say they are taking a cautious approach and warn not to expect an immediate rush of foreign investment into the Middle East's biggest market.
"In the immediate to short term, the money flow will be gradual," says Sachin Mohindra, Gulf portfolio manager for Invest AD.
One reason for the cautious approach: When local investors anticipated the opening of the market, they bid up stock prices, leaving them overvalued in the opinion of fund managers.
Additionally, there are regulations in place for foreign investors. Only financial institutions with USD 5 billion or more of assets under management that have been in operation for five or more years are eligible to invest, thought the regulator says it could make exceptions.
