Saudi Arabia Moves Closer to Opening Stock Market

Sept. 25 (Bloomberg) -- Saudi Arabia is allowing citizens of neighboring Gulf countries including Kuwait and Qatar to buy and sell shares freely for the first time, moving closer to opening the Middle East's biggest stock market to all foreign investors.

Nationals from the five other Gulf Cooperation Council states may now buy Saudi stocks without limit, the kingdom's Capital Markets Authority said late yesterday. That removes a statute restricting banking and insurance stocks to Saudi citizens and foreigners living in the kingdom.

Saudi Arabia has been taking ``gradual but steady steps toward opening the market,'' said Shadi Zubeidi, head of investment banking advisory at Saudi-Swiss Securities in Riyadh. ``We'd like to see the bourse opened to all foreign investors. It's good to see the regulators moving in that direction.''

The Saudi government in March 2006 cleared the way for resident foreigners to trade stocks, and allowed listed companies to split their shares in a bid to revive the country's flagging equity market. In May 2006 it fired chief regulator Jammaz al- Suhaimi, and in January billionaire Prince Alwaleed bin Talal said he'd buy $1.4 billion of Saudi shares in efforts to restore investor confidence.

The benchmark Tadawul All Share Index gained 0.6 percent to close at 7,910 in Riyadh today. Al-Rajhi Bank, Saudi Arabia's biggest publicly traded lender by market value, Samba Financial Group and Saudi British Bank led the advance.

`Buying in Anticipation'

Saudis are ``buying in anticipation that other Gulf investors will start pouring in, especially given the expectations of strong third-quarter results on the horizon,'' Abdulla al-Aqil, a trader with Samba Financial Group, said today.

The Tadawul has dropped 0.3 percent so far this year, the only market to fall among the GCC countries. Last year, it tumbled 53 percent, the worst performing benchmark in the world, fueled by concern a two-year bull market left shares expensive relative to expectations for earnings growth.

At stake for foreign investors in Saudi Arabia is a market with a value of $357 billion, about the same as the stock market of Finland, in an economy the International Monetary Fund forecasts will expand 6.5 percent this year. Crude oil has gained more than 50 percent in 2007, and closed at a record $83.32 on Sept. 20. Gulf oil producers including Saudi Arabia are earning $1.2 billion a day from oil exports.

The regulator's decision ``is definitely a good first step,'' said Khaled Masri, a partner at Rasmala Investment LLC in Amman, Jordan, which manages about $700 million. ``It will lead to more portfolio investment going into Saudi Arabia. The next step may be opening the market to foreign investors.''

Investment Banks

A 2003 law required Saudi banks to separate their commercial and investment banking units and opened the door for foreign banks to apply for licenses. Deutsche Bank AG and HSBC Holdings Plc started investment banking units in Saudi Arabia last year.

Goldman Sachs Group Inc., the world's biggest securities firm by market value, said on Feb. 4 that it signed a ``strategic cooperation'' agreement with the investment-banking unit of Jeddah-based National Commercial Bank. Merrill Lynch & Co. in June got a license to trade stocks on the Tadawul.

Isolation from international capital may have helped Arab markets including Saudi Arabia and Kuwait avoid a slump sparked by losses in the U.S. subprime-mortgage market, EFG-Hermes Holding SAE said last month.

The markets have ``the lowest level of western institutional ownership in the world,'' Philip Khoury, the Egyptian investment bank's head of research, wrote in a note to clients Aug. 3.

Sell-Off

The Morgan Stanley Capital International World Index dropped as much as 11 percent from its record on July 19 as turmoil in the credit markets sparked a global sell-off. The Tadawul index gained 5.3 percent during the rout that lasted until Aug. 16.

Investors from Latin America to Japan are seeking to buy Gulf stocks to tap the region's petrodollar-fueled economic growth, Guillaume Hannebelle, Citigroup Inc.'s head of Middle East equities distribution, said in a June interview. Two years ago international interest in the stocks was ``virtually zero'' because few were open to foreign buyers and information disclosure was limited, Hannebelle said.

Qatar, the smallest oil producer in the Organization of Petroleum Exporting Countries, opened its stock exchange to international investors in April 2006, allowing them to buy as much as 25 percent of a company's shares. U.A.E. regulations now allow companies in Abu Dhabi and Dubai to let international investors buy combined stakes of as much as 49 percent.

``Gulf investors will probably start buying next week as this news filters through and after they have a chance to talk to brokers and move money over,'' said Waleed Madani, vice president of research at investment bank Financial Transaction House in Jeddah, Saudi Arabia.

The GCC states include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the U.A.E.