THE FINANCIAL TIMES: The introduction of swap agreements that permit indirect foreign investment in Saudi Arabia’s stock exchange is a step toward opening the market to direct foreign investment in the Tadawul, said local bankers.
“Next comes the removal of the swap contract and allowing foreign direct investment. There is no date. It could be months or years,” said Morgan Stanley Saudi Arabia managing director and chairman, Fahad Almubarak.
“The next step is to allow investors to buy directly instead of through swaps but I don’t think [the regulator] is in a hurry,” said one Riyadh-based banker.
The swap agreements allow an authorised local firm to trade on the Tadawul on behalf of a foreign client. Its introduction has been seen by bankers as a significant move by the Capital Market Authority (CMA) toward opening the market to foreign investment. “This is very much the opening up of the market. It is absolutely going to facilitate foreign investment in the underlying shares,” said HSBC Saudi Arabia CEO Timothy Gray shortly after the introduction of swap agreements was announced on 20 August.
Both Morgan Stanley and HSBC are authorised by the CMA to transact swap agreements with foreign investors.
Previously, investors outside the GCC were banned from trading on the bourse, except indirectly through mutual funds. The introduction of swap agreements will allow international funds to stock pick, said Almubarak. “It is very significant as Saudi Arabia has been closed to direct investment in specific stocks. Significantly, it will allow them to pick stocks and decide on the duration and the amount. Now investors will receive the direct economic benefit,” he said. Foreign Direct Investment in Saudi Arabia’s Tadawul Seen as Next Step Following Swap Agreements >>> By Victoria Robson in Dubai | September 3, 2008
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