Opening Access to Saudi Arabia
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Saudi Arabia is known for being the largest, most liquid, and least accessible market in the Arab world. Monday Saudi Arabia's Capital Market Authority (CMA) signed an agreement that would allow index compiler MSCI Inc (NYSE: MSCI) to use stock market data to create and issue indexes on the kingdom's equity markets. This agreement will go a long way toward Saudi Arabia attaining MSCI Frontier or Emerging Market status. It will also open the kingdom up to global trade. Currently there is a widespread dominance of local investors. The MSCI Saudi Arabia Domestic Indices, and related regional indices, will be available come June 2012. The reintroduced Saudi Arabia Domestic Indices will include large cap, mid cap, and small cap indices aimed at institutional investors who aren't constrained by foreign ownership requirements.
The kingdom is already primed for foreign investment. Saudi Arabia's main export commodity, oil, is priced in US dollars upon which the riyal is firmly pegged. This policy is in place to maintain low interest rate risk and investor confidence. This peg provides foreign investors with stability and predictability. Also, just this past year King Abdullah bin Abdul-Aziz promised to spend SR500 billion to build real estate, infrastructure, and industry. Among companies traded on the Saudi bourse that foreign investors will now have access to are Saudi Basic Industries Corp, the world's biggest petrochemicals company, and Kingdom Holding Company, the investment company controlled by billionaire Prince Alwaleed bin Talal, the Warren Buffett of Saudi Arabia.
Going forward this change will mean a lot of things for both Saudi Arabia's global and domestic investors. Current Saudi investors that have enjoyed a stronghold on the kingdom's industry and profits will have an easy time at first. As more foreign investment comes in this will only push prices higher. It will be a great time for Saudi investors to hold onto their current investments. However, opening up the market will cause noticeable volatility at first. Especially as institutional investors are able to access the kingdom for the first time. However, the volatility will even out in time and there will be great profits to be made.
The reintroduction of these MSCI Saudi Arabia Indexes in June 2012 is something for global investors to look forward to and begin allocating their budget to include. Saudi Arabia is a great opportunity for investors. It is a highly liquid market that has been kept in pristine condition. MSCI will certainly have its hands full this summer. Saudi Arabia's Tadawul All Share Index is the second-highest performer in the Gulf this year, following closely behind Dubai. This presents a very unique and attractive opportunity for investors.
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