Saudi Arabia’s stock exchange allowed foreign investors to trade shares for the first time on Monday, boosting efforts by the world’s top oil exporter to become a major global capital market.
Foreign banks, brokerage houses, fund managers and insurance companies based outside the Gulf can now invest directly provided they meet the requirements.
The measures “could be seen as the first step in a broader liberalisation” of the economy in a country traditionally cautious about foreign political and economic influence, the Capital Economics research group wrote.
Opening of the Tadawul All-Shares Index (TASI) coincides with falling revenues for the kingdom which, despite efforts at diversification, still counts on oil for more than 90% of public income.
Influx of foreign capital
The International Monetary Fund projects a budget deficit of 20% of gross domestic product for Saudi Arabia in 2015 after global oil prices collapsed over the past year.
At the same time, government spending is forecast to remain strong, leaving it facing a deficit of $130bn, its first shortfall since 2011.
Foreign exchange reserves have also dropped with oil prices, to $683bn at the end of April compared with $732bn four months earlier, Jadwa Investment in Riyadh said.
The country now depends on foreign currency to fund domestic spending, meaning “an influx of foreign capital on the back of the stock market opening up would help to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves”, Capital Economics said.
By: Fin 24