Saudi market falls on first day of trading by foreigners

Arrow down1The index of the Saudi Arabian stock exchange, the Tadawul, has fallen by nearly 1% on the first day foreigner investors were allowed to trade.

The Saudi regulator, the Capital Market Authority, allowed qualified foreign investors to access the roughly $560 billion stock exchange for the first time yesterday, June 15.

However it seems few foreign investors participated, with the chief executive of the Tadawul reportedly saying only half a dozen foreign institutions had applied for licences so far.

Although there has been excitement among western asset managers about the prospect of directly owning shares in companies such as SABIC, a large Saudi chemicals firm, some analysts suggest the Saudi market may be too expensive.

“We harbour concerns that the market could correct downwards as fundamentals again come to the fore,” says a statement by Bank of America Merrill Lynch Global Research, which notes that the market is trading at more than 16 times forward price to earnings.

It may be that foreign institutions have not yet had time to complete the paperwork needed to trade on the Tadawul, given that registration for eligible institutions only opened on June 1.

Speaking to Funds Global earlier this year, Arindam Das, head of securities services in the Middle East and North Africa for HSBC, said: “I don’t think the volumes on day, week or month one will represent the full potential.”

©2015 funds global mena

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