Saudi Arabia has opened up its $585 billion stock market to foreign investors for the first time. The Tadawul Saudi Stock Exchange now allows companies to raise money straight from foreign investors to expand their business. Prior to the announcement, foreigners only could access the market indirectly by working with a local Saudi institution.
The estimated value of the stock exchange makes it the biggest in the Middle East. Opening the stock market to more investors is expected to help diversify the economy and create more jobs for the kingdom’s growing population. According to London-based analysis firm Capital Economics, foreign money flowing into the stock market could “help to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves.”
Low global oil prices has encouraged the country to seek other means of boosting its economy. Saudi Arabia has seen its reserves coffers depleted due to the plunge in oil prices over the past year. So far, the country has used increased government spending to blunt the effects of lower revenue on the wider economy, but this is not a sustainable path. If prices remain low and new sources of revenue are not found, it could constrain government spending and affect many companies that rely on government projects for income.
The decision to open the stock market to foreign investors may also be part of a larger liberalization effort to boost the kingdom’s economy. Many multinational companies have their factories and facilities in the socially and religiously ultraconservative country and many of the world’s biggest brands are sold there.
However, some analysts are warning that an immediate rush of foreign investment into the Saudi Arabia stock market should not be expected. Many investors are moving cautiously to gauge the risks and rewards of investing in the market before dumping their money in. The Tadawul index was slightly down Monday, closing just shy of a percentage point below Sunday’s closing mark.