Insights

Update: Opening the TADAWUL up to Foreign Investors

Last week the Capital Markets Authority (CMA) confirmed that the regions largest, diverse and most mature capital market, the Tadawul, will be open to qualified foreign institutional investors (QFIs) by mid-2015. Currently, the Saudi stock markets capitalization is $528bn, equivalent to two thirds of Saudi GDP, making it larger than the Mexican stock market. When compared regionally it is almost the same size as all the other equity markets in the Gulf combined. Opening up the market is likely to lead to inclusion into the MSCI emerging market index by mid-2017, with as much as $40-50 billion of total foreign inflows. Since the publication of our original report, <a href="http://{{siteurlwithoutprotocol}}/en/download/saudi-stock-market-august-2014-1/research-10-2">Opening the Tawadul up to Foreign Investors</a>, back in August 2014, we have seen a number of developments which have impacted the Tadawul All Share Index (TASI). This includes a massive drop in oil prices which negatively impacted investor sentimental and led to panic selling, and the $6 billion initial public offering (IPO) of the National Commercial Bank (NCB), which amounted to the second-biggest IPO of 2014 globally. In this update we discuss some of these recent developments in more detail.

The Saudi Economy in 2015

We expect that the economy will continue performing strongly in 2015, albeit at a slower pace than in the previous few years. Lower oil production will drag down overall GDP growth to 2.5 percent while the non-oil private sector will continue to record robust growth, at 5.3 percent. The decline in oil prices will mean a narrowing current account surplus and a larger-than-budgeted fiscal deficit.

Saudi economy 2015

Oil market dynamics and Saudi fiscal challenges

The recent OPECs decision not to cut output adds further uncertainty not only on the global oil market, but also on the outlook for the Kingdoms fiscal policy. In this report we examine the global environment that led to such decision. We note that while such decision along with other variables in the market would result in different price levels over the next two years, prices of $85 and 83 per barrel for 2015 and 2016, respectively, are most likely. These lower prices will have a direct impact on the balance of payments and fiscal position of the Kingdom. In this report, we examine a number of fiscal policy reactions to different budgetary outcomes and implication of each on the non-oil economy.

Saudi Stock Market- August 2014

The announcement in late July 2014 by the Council of Ministers that foreign investors would be allowed to invest directly in the Tadawul came as no surprise. The Saudi Arabian index is the regions most diverse capital market due to its size and maturity, and has been gearing up to welcome foreign investors for some time now. Jadwa Investment views the opening up of the Tadawul as an overall positive but we believe a cautious and considered path to reform is the best way forward.