Saudi says market reforms effective by mid-2017 – Move to attract foreign investment

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DUBAI, May 5, (RTRS): Saudi Arabia will implement by the middle of 2017 planned reforms to stimulate the stock market and open it wider to foreign investment, the Capital Market Authority (CMA) said on Thursday.

“The amended rules will be published and effective before the end of the first half of 2017,” the regulator said in a statement sent to Reuters.

Announcing the reforms on Tuesday, the CMA had said the new rules and a date for them to become effective would be published by the end of the first half of next year.

Each foreign institutional investor will be allowed to own directly a stake of just under 10 percent of a single listed company, up from a previous ceiling of 5 percent, the Capital Market Authority (CMA) announced.

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

To qualify as a foreign institutional investor in Saudi Arabia, each asset manager will only need to have a minimum of $1 billion of assets under management globally, instead of $5 billion. The CMA said it would now accept investments by new types of foreign institution including sovereign wealth funds and university endowments.

The regulator 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 market downturns.

Meanwhile, the Saudi Stock Exchange will introduce during the first half of 2017 the settlement of trades within two working days of execution, the bourse said.

Saudi Arabia wants to join international index compiler MSCI’s emerging markets index as soon as in 2017, because many global funds base their investments on that index. Officials have conceded same-day settlement is an obstacle to inclusion.

MSCI is expected to say in June whether it will review Saudi Arabia for possible inclusion in the index, and the reforms announced on Tuesday could help to sway its decision.

Nevertheless, the Saudi stock market did not react positively to the announcement; its index was 1.4 percent lower in late trade.

One reason is that the reforms will take considerable time to materialise. The CMA said its new foreign ownership rules, and a date for them to take effect, would be revealed only by the end of the first half of 2017.

A deeper reason is that despite last June’s opening to foreign institutions, overseas funds have so far not been very keen to put their money into Saudi Arabia; total direct and indirect foreign investment accounts for less than 1 percent of the $408 billion stock market, bourse data shows.

 

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