Saudi Arabia’s stock exchange opened its doors to foreign investors on Sunday as a leading investment firm announced that foreign investment in the country is expected to grow by 20 percent in the coming year.
Beginning on Sunday, the Saudi stock exchange Tadawul will allow non-Gulf nationals to invest in ‘Exchange Traded Funds’, an index fund traded on an exchange like a stock so as to offer foreign investors the opportunity to obtain broad-based exposure to the Saudi equity market.
The news came as Siraj Capital, one of the regions leading investments firms, predicted that foreign direct investment (FDI) in Saudi Arabia will grow by 20 percent in 2010.
“[To understand the] opening up to foreigners we have to back in time of the burst of the bubble three years ago, when the market reached 20,000 points,” a foreign businessman in Saudi Arabia told The Media Line on the condition of anonymity.
“After the crash the foreigners who were living in the kingdom were allowed to invest to attract more types of investors and to keep some of the money that is sent home [out the country]/”
“Now the stock market has cleared up,” he said. “The Capital Market Authority regulates the market and punishes inside trading, the Tadawul is a more mature market and regulators feel they gradually can open it up.”
“They want to increase the liquidity of the market,” the businessman continued. “I always thought it was stupid to limit stock exchanges in the Gulf to its citizens when there are foreigners who are making millions. It’s stupid not to allow them to invest in their country [of residency].”
Amrith Mukkamala, the head of the Asset Management Group at the Kuwait Middle East Finance & Investment Company, said other countries in the region are likely to follow suit.
“Qatar is working on it,” he told The Media Line. “There are some index providers that have been working with financial institutions to develop a Qatar-centric exchange traded fund.”
Foreign Direct Investment to Saudi was $24 million in 2008, according to the latest numbers from the Saudi Arabian General Investment Authority.