Saudi Arabia woos Hong Kong institutional investors to its equity market

Saudi Arabia is seeking to emulate China’s model of a gradual opening of market access to international investors

PUBLISHED : Friday, 03 March, 2017, 9:26pm
UPDATED : Friday, 03 March, 2017, 10:54pm

Saudi Arabia is seeking to attract Hong Kong institutional investors to its stock market, the largest in the Middle East, as the country loosens restrictions on foreign direct investment and hopes to join MSCI’s widely-tracked emerging market index.

“The opening up of Saudi markets has attracted a lot of interest and we were surprised by the enthusiasm from Hong Kong investors,” Mohammed El-Kuwaiz, vice chairman of Capital Market Authority (CMA), which oversees the kingdom’s stock market, said in an interview with the South China Morning Post.

El-Kuwaiz, along with other senior government officials and executives from Saudi companies, held a roadshow in Hong Kong on Friday to meet with Asian institutional investors and discuss the Saudi equity market.

“The turnout is the highest in Hong Kong compared with other international cities, as we held a series of meetings with investors around the world,” he added.

“We’ve received a tremendous amount of interest from foreign investors, particularly Hong Kong-based and Asia-based asset management firms.”

Friday’s roadshow followed a similar event in Singapore earlier this week and two others in New York and London in October and November respectively.

In 2015, Saudi Arabia officially opened its more than US$500 billion stock market to allow limited ownership by foreign institutional investors. Foreigners who want to invest must obtain a license from the regulator as Qualified Foreign Investors (QFI) and have more than US$5 billion in assets and at least five years of investment experience. They can’t own more than 49 per cent of any single listed company.

But the regulator revamped the rules late last year and eased the restrictions further, including a reduction in the value of assets required for QFIs from US$5 billion to US$1 billion and allowing QFIs to directly own as much as 10 per cent of a traded company, up from the previous ceiling of 5 per cent, said El-Kuwaiz.

Boosting foreign investment is a key part of the “Saudi Vision 2030”, a plan unveiled by Deputy Crown Prince Mohammed bin Salman to reform the kingdom’s economy and reduce its dependence on oil.

To boost foreign ownership, the Tadawul, Saudi Arabia’s only stock exchange, also aims to implement T+2 settlement rules as early as the beginning of the second quarter, so as to catch up with global best practise, said El-Kuwaiz.

The exchange currently implements the T+0 rule, which means the settlement occurs on the same day a trade takes place.

El-Kuwaiz said the planned shift to T+2 settlement rule has received encouraging feedback from some index compilers, including MSCI.

Saudi Arabia is seeking to join the MSCI’s emerging market index.

El-Kuwaiz said the MSCI “is looking to start a public consultation” on the inclusion of the Saudi market in the second half of the year.

El-Kuwaiz said the opening up of the Saudi equity market will continue at a gradual pace.

“This is a lesson we learned from China and some other countries - to start in a gradual way,” he said.

He compared the QFI programme and a similar scheme in China -- the Qualified Foreign Institutional Investor (QFII), which was launched by Chinese authorities in 2002 to allow foreign investors access to its Shanghai and Shenzhen stock exchanges.

“We start by implementing the QFI programme and then updating the rules and lowering the bar [for foreign investors] gradually,” El-Kuwaiz said.