Olivier and Mann – The Kingdom of Saudi Arabia (KSA) is hoping that rule changes that will extend the settlement period on traded stocks will draw in more investments from abroad.
The Tadawul index has around 50 foreign investors and would like to take in more following a shift to a T plus 2 system by the end of the first half of this year. T plus 2 is used by major exchanges and Saudi’s current arrangement is for same-day settlement.
A number of investment managers have been waiting for the market to open up, privatisation and the transformation of the general market structure are now closer to reality and the Saudi regulator has had a large amount of interest from global companies keen on having a license to conduct business in the country.
The country’s bourse would like to see more foreign investments as it goes through extensive economic and social reforms. Attracting foreign capital is the main objective of Deputy Crown Prince Mohammed bin Salman. It is the centrepiece of “Saudi Vision 2030,” which also includes plans to offer shares in the state-owned oil giant Saudi Aramco.
The kingdom’s market has already permitted limited international direct investment since 2015 and relaxed restrictions somewhat more last year. Foreign investors still only make up about 4 percent ownership of Saudi shares.
Outlines for the change in the settlement system have received positive comments from the majority of worldwide indices, such as MSCI Inc. and the scheme may be implemented earlier than planned. KSA would like to join MSCI’s emerging market index, which is tracked by a number of leading fund managers.
MSCI sees the T plus 2 system as the last piece needed to possibly include the KSA market in its pool of emerging-markets. The scheme is a “game changer” for Saudi Arabia and for the whole Gulf region and MSCI expects its implementation this May.
Investors are optimistic that should the settlement scheme move in line with international best practices, they’d be more than happy to move forward.