Saudi to launch ETF open to foreigners on Sunday
Riyadh, March 23, 2010
Saudi Arabia will launch on Sunday its first exchange-traded fund, which will be accessible to foreigners as part of efforts to open up the biggest Arab bourse.
Falcom's exchange-trade fund for Saudi stocks will be listed and start trading on March 28, the stock exchange said in a statement.
'Non-resident foreigners will be allowed to trade in this fund's units,' the bourse said.
Meanwhile, Saudi Arabia's plan to launch exchange-traded funds (ETFs) may lure more investors to the bourse but major funds won't commit large sums without better regulation or the right to buy individual stocks, said analysts.
While state firms in neighbouring Dubai are busy sorting out massive debt problems, Saudi Arabia is rolling out investments worth $400 billion after high oil prices filled state coffers.
Global banks and fund managers have set up shop in the capital Riyadh and are exploring ways to tap opportunities on the best performing Gulf bourse last year and so far in 2010.
Yet investments remain small as many outsiders want the right to directly buy and fully own individual shares. Foreign buyers of shares via swaps were $792 million, or 2.3 percent of total market capitalisation, from March until February, according to Saudi investment bank Jadwa Investment.
Under the swap agreements foreign investors can buy Saudi shares through licensed Saudi brokerages who technically own the stock but transfer the returns to the foreign investor.
Daniel Broby, chief investment officer at UK fund manager Silk Invest, which owns Saudi stocks, said ETFs had a potential of just $200 million in the medium term.
'If Saudi were to allow full foreign ownership in the medium term we could see $14.9 billion flow into equities, assuming the market was included in mainstream emerging markets indexes,' he said, adding that such a move would be a far greater 'game changer' for the exchange than ETFs.
Attracting investment to the bourse is part of plans to lower dependence on oil but diplomats say the government is taking only small steps to avoid upsetting the religious elite who are wary of opening up the bourse. - Reuters