With oil cheap, Saudis open stock market to foreign investment
Saudi Arabia may be rich enough to weather the current trend of low oil prices, but it鈥檚 losing money nonetheless and has found a way that it believes could help make up for the loss: opening its stock market to foreign investors.
By opening the Tadawul Saudi Stock Exchange the country will allow its companies, especially those not involved in the oil industry, to raise money directly from foreign investors, a practice that would help Saudi businesses grow, diversify the country鈥檚 economy and create new jobs for its growing population.
The exchange 鈥� the largest in the Middle East with a value of up to $590 billion 鈥� is heavy on petrochemical firms, which make up one-fifth of the companies listed. Before it was opened on June 15, foreigners could invest in Saudi companies , a process that was as expensive as it was complex. ()
Saudi Arabia, OPEC鈥檚 richest and most influential member, is the architect of the group鈥檚 strategy to keep oil production up and therefore depress prices at a time of an oil glut caused in large part by the boom in shale energy in the United States. The goal is to make shale oil, which is expensive to produce, unprofitable so OPEC nations can regain lost market share.
Some members of the cartel, including Iran and Venezuela, have expressed dismay over the strategy, saying they can鈥檛 afford to ride out a period of low oil prices. But Arab Gulf states are rich enough to survive. Still, even Saudi Arabia will feel the pinch somewhat with a . ()
At the beginning of 2015, Riyadh鈥檚 treasury had an estimated in currency reserves, but already this year it has had to draw billions of dollars from this fund to maintain spending, at least in part to pay for the government projects that many Saudi companies rely on for their own revenues.
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Capital Economics, a financial analysis firm in London, said in a statement that substantial new foreign investment could 鈥渉elp to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves.鈥�
In a statement, the investment bank Alistithmar Capital of Riyadh called the opening of the Tadawul exchange the start of a 鈥溾�� for Saudi industries because its listed companies will have access not only to broader sources of capital but also international expertise in shaping their business models. ()
The bank said foreign investors will benefit too, gaining access to some of the most promising companies in the Middle East that provide goods and services to the most populous Arab nation in the region.
鈥淎s the largest and most liquid market in Middle East and North Africa, there is understandably significant interest in and excitement about this event,鈥� Khatija Haque of the Dubai-based bank Emirates NBD told The Wall Street Journal.
鈥淔rom an economic perspective, the move is timely, as foreign portfolio inflows would help to offset an expected deterioration in the current account surplus this year,鈥� she said.
By Andy Tully of Oilprice.com
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