DUBAI: Saudi Arabia’s bourse surged Tuesday after the financial regulator said it would open the stock market to direct investment by foreign institutions in the first half of 2015.
The plan is one of the country’s most eagerly anticipated economic reforms, and could eventually result in flows of tens of billions of dollars of fresh foreign money into Saudi stocks – though the regulator is expected to keep inflows very gradual to avoid destabilizing the market.
The main Saudi index jumped 2.8 percent, its biggest rise since last October, to a fresh six-year closing high of 10,025 points. Trading volume was the highest in six weeks.
Petrochemical giant Saudi Basic Industries (SABIC), one of the big blue chips which foreign investors would be expected to favor, was the main contributor to the rise, surging 6.9 percent. By itself the company accounts for about a quarter of the Saudi market’s total corporate profits.
“SABIC will be the biggest attractor of foreign capital,” said Daniel Broby, chief executive of Gemfonds, a fund manager company which focuses on emerging markets. “Regardless of the depth of its market, Tadawul [the Saudi bourse] will be viewed by foreign investors as a petrochemicals play.”
Shares in Yanbu National Petrochemicals (Yansab), a SABIC subsidiary which Broby said was more attractive from a valuation perspective, gained 2.9 percent.
Among other blue chips, mobile telecommunications operator Etihad Etisalat (Mobily) rose 5.1 percent, while Al Rajhi Bank, the kingdom’s biggest listed lender, added 2.2 percent.
“Etihad Etisalat is the short-term play. [It is] on a price to earnings ratio of 10 which is low for a wireless company with growth prospects and is substantially off its high,” Broby said.
Stocks other than blue chips could also benefit from the market opening, however. At present, foreign investors other than citizens of neighboring Gulf states are limited to buying Saudi stocks through swaps or exchange-traded funds; the cost of swaps makes it uneconomic to invest in some smaller companies.
Among the smaller counters, “one we like is Red Sea Housing, which is a global leader in prefabricated housing,” Broby said. The stock edged up 0.03 percent.
Saudi Arabia’s inclusion in major global equity indexes looks unlikely to happen before 2016 at the earliest. MSCI said Tuesday that it might make a decision as early as June 2015 on whether to add the country to its emerging market stock index.
Elsewhere in the region, Egypt’s bourse added 1.1 percent after pulling back in the previous two sessions in response to a surprise interest rate hike by the central bank and the deepening crisis in the Palestinian territories.
Commercial International Bank, Egypt’s largest listed lender, was the main support, jumping 3.4 percent. The bank’s board was due to review its second-quarter results Tuesday.
Qatar’s index rose 1.3 percent on the back of banks and property firms. Islamic lender Masraf Al Rayan added 2.0 percent after net profit rose 12.1 percent in the second quarter, beating analysts’ estimates.
Property developers Barwa Real Estate and United Development added 3.3 and 0.9 percent respectively after the central bank said its real estate price index hit a record high in June 2014, jumping 29 percent year-on-year.
Dubai’s benchmark slid 1.0 percent as builder Arabtec continued to decline and fell 3.4 percent. The stock plunged this week after Arabtec’s key shareholder, Aabar Investments, did not confirm a report which said Aabar was in talks to increase its stake in Arabtec.
Abu Dhabi’s bourse edged down 0.2 percent. Telecommunications firm Etisalat was the main drag, sliding 1.3 percent.
A new direction for the UAE markets after their recent big swings “hasn’t been defined yet,” said Marwan Shurrab, fund manager and head of trading at Vision Investments, adding that recent moves were based on opportunistic trades seeking to profit from high volatility.