With Saudi Arabia, the largest share market in the Middle East is open at least for institutional investors. An engagement on it bears chances and risks while market entry remains difficult. Find more articles on the altii Content Link AL126476.
Saudi Arabia’s share market is the largest in the Middle East. According to the World Federation of Exchanges, firms on the market have a combined market capitalisation of $570 billion US-Dollar. Still, the market is not expected to grow fast due to its opening. “Relatively high transaction costs and a slow adaption of international accounting standards will slow down capital inflows,” says Enrico Camera, fund manager of the GAM Star (Lux) Emerging Alpha.
Moreover, the market remains closed for many investors. Only large financial institutional with more than five billion US-Dollar in assets and more than five years of investment experience are allowed to invest on the market. Further, foreign investors are not allowed to hold more than 49 percent of any listed company. With such rules, the Saudi Arabian government wants to attract institutional investors, promote market stability and reduce volatility. The Capital Market Authority, the Saudi Arabian regulator, hopes this "will motivate the listed companies […] to raise their performance by improving the level of transparency, financial information disclosure and governance practices.”
A circumvention of this regulation can be achieved using Deutsche Bank’s “db x-trackers MSCI GCC Select Index UCITS ETF”. Two third of the fund’s assets are invested in Saudi Arabia, the remaining covers other stock markets of the gulf region. “Until now, foreign investors could not invest in Saudi Arabian stock markets. With our ETF, investors have are a cost efficient and liquid entry to this market,” says Simon Klein, Deutsche AWM.
If such an investment is profitable remains questionable. “Investors should generally act cautiously, because the Saudi Arabian economy is, due to a lack of structural reforms, strongly affected by the oil price drop”, warns Enrico Camera. But he sees chances as well because “the opening of the market is a significant investment opportunity as Saudi Arabia has not just a large stock market but also huge economy potential.”
Saudi Arabian investors have high capital as well. Mark Kerstens, CFO at Solexel, says that “every investor in the Kingdom we meet had the clear intention to invest and the required capital.” Previously, the photovoltaic producer has closed a financing round successfully, in which the Riyadh Valley Company of the King Saud University of Saudi Arabia (KAUST) participated.