SAUDI ARABIA: The Arab world's biggest bourse prepares to open to direct foreign investment in Saudi Arabia, a relief for many who lost hundreds of thousands of dollars in the crash of 2006 who are now regaining confidence to trade again

Record ID: 189506

  • Title: SAUDI ARABIA: The Arab world's biggest bourse prepares to open to direct foreign investment in Saudi Arabia, a relief for many who lost hundreds of thousands of dollars in the crash of 2006 who are now regaining confidence to trade again
  • Date: 14th August 2014
  • Summary: RIYADH, SAUDI ARABIA (RECENT) (REUTERS) SAUDI BROKER AT FALCOM, FINANCIAL SERVICES COMPANY, EXPLAINING TO SAUDI INVESTOR ABOUT SAUDI MARKET SAUDI INVESTOR LISTENING SAUDI BROKER'S HAND SCROLLING ON COMPUTER MOUSE VARIOUS OF COMPUTER MONITOR SHOWING TRADING RULES AT FALCOM VARIOUS OF SAUDI BROKER EXPLAINING TO SAUDI INVESTOR SAUDI MARKET (SOUNDBITE) (Arabic) SAUDI INVESTOR, MOHAMED AL-OTAIBI, SAYING: "I consider this a profession. Instead of staying at home, I come here and make two hundred, four hundred or five hundred riyals (USD53, 106 or 133), whatever I can make, then I leave, especially after I lost my previous capital (during 2006 market crash)." VARIOUS OF SAUDI INVESTORS MONITORING SAUDI STOCK MARKET ON SCREEN VARIOUS OF SCREEN PROJECTING SAUDI STOCK MARKET INDEX RATES (SOUNDBITE) (Arabic) SAUDI INVESTOR, ABU-FAISAL, SAYING: "I advise foreign investors to make long-term investments, to take the rewarding dividends, and never rush for a quick profit. God willing, the Saudi market is heading towards an unexpected break through." SAUDI INVESTOR MONITORING SAUDI MARKET ON COMPUTER SAUDI INVESTOR'S FACE COMPUTER SCREEN SHOWING SAUDI STOCK MARKET INDEX RATES (SOUNDBITE) (Arabic) SAUDI GOVERNMENT EMPLOYEE AND INVESTOR IN STOCK MARKET, NASSER AL-KHAMISI, SAYING: "In terms of my portfolio, with the market opening to foreigners, now my portfolio is divided into three parts, one for quick speculation, another for a fifteen-day speculation and the last for investment. Once foreigners access the market I will liquidate half my portfolio and see where foreigners are heading, in which companies they are investing, and then I will re-enter the market." SAUDI BROKER AND FOREIGN INVESTOR MONITORING STOCK MARKET FOREIGN INVESTOR SCREEN SHOWING SAUDI MARKET INDEX RATES VARIOUS OF SAUDI BROKER AND FOREIGN INVESTOR MONITORING STOCK INDEX INVESTOR'S HAND USING COMPUTER MOUSE WHILE MONITORING SAUDI STOCK INDEX RATES INVESTORS MONITORING SAUDI STOCK MARKET RATES
  • Embargoed: 29th August 2014 13:00
  • Keywords:
  • Location: Saudi Arabia
  • Country: Saudi Arabia
  • Topics: Economy
  • Reuters ID: LVAB34HYU2V2PD66HF1BK92K6A5Q
  • Story Text: Seventy-year-old Saudi Arabian stock speculator Mohamed al-Otaibi says he lost hundreds of thousands of dollars in the crash of 2006, but he's back trading again as the Arab world's biggest bourse prepares to open to direct foreign investment.
    The activities of Otaibi and many thousands like him mean there will be a clash of investment cultures when international institutions enter the USD580 billion Saudi market early next year, under a plan announced by the regulator last month.
    Sitting on a sofa in a trading room at Saudi financial firm Falcom in Riyadh, Otaibi shunned shares in the country's heavyweight petrochemical firms and banks, believing they're not volatile enough to offer quick profits.
    Instead, he simply scans an electronic screen for stocks in which buy or sell orders are building up strongly. These often include cement, agriculture and real estate shares.

    "I consider this a profession. Instead of staying at home, I come here and make two hundred, four hundred or five hundred riyals (USD53, 106 or 133), whatever I can make, then I leave, especially after I lost my previous capital (during 2006 market crash)," he said.
    Saudi Arabia is one of the last major markets in the world to open up, so the reform is attracting massive interest among international fund managers. But they will face an unusual and in some ways difficult trading environment.
    Activity is dominated by about 4.3 million retail investors who buy stocks straight from the market rather than going through professional fund managers. These retail investors owned a little more than a third of shares at the end of 2013, according to Capital Market Authority (CMA) data, but account for over 90 percent of daily trading volume.
    The retail proportion of trading is much higher than in most other big markets around the world, a result of the slow development of the Saudi fund management industry. In many other emerging markets, retail investors account for closer to two thirds or half of turnover, and the proportion is much smaller still in developed markets.
    Saudi retail investors like Otaibi tend to take a shorter-term approach than institutional investors, chasing quick profits, dumping stocks at the first sign of weakness, and basing decisions on news headlines, rumours or price momentum rather than the long-term valuations favoured by fund managers.
    This poses risks for the foreigners. One is that local investors, anticipating the entry of foreign money, may bid stocks up sharply in the next few months, making the market opening less lucrative than international fund managers hope.
    Another risk is that some shares could diverge permanently from levels which foreigners consider appropriate, because the two groups of investors use such different yardsticks.

    "I advise foreign investors to make long-term investments, to take the rewarding dividends, and never rush for a quick profit. God willing, the Saudi market is heading towards an unexpected break through," Saudi investor Abu-Faisal said.
    Among the Saudi investors, events such as stock splits - when a firm divides its shares into smaller units to make them more liquid, without changing the underlying value of the company - can attract demand.
    At present, foreigners other than citizens of nearby Gulf states are limited to buying Saudi stocks indirectly via swaps involving international banks and through a small number of exchange-traded funds - expensive and inconvenient options.
    In 2013, foreigners owned just 1.2 percent of the market via swaps, according to CMA data. The potential for their portion to rise is huge; if Saudi Arabia is added to global equity indexes, it may attract over USD50 billion of fresh money from abroad in the coming years, fund managers estimate.
    But by the time foreigners are allowed to buy stocks directly in the first half of 2015, bargains may be few and far between. The main stock index has already jumped over 8 percent since the market opening plan was announced on July 22.

    "In terms of my portfolio, with the market opening to foreigners, now my portfolio is divided into three parts, one for quick speculation, another for a fifteen-day speculation and the last for investment. Once foreigners access the market I will liquidate half my portfolio and see where foreigners are heading, in which companies they are investing, and then I will re-enter the market," Saudi government employee and investor in the stock market, Nasser al-Khamisi, said.
    The same pattern was seen in the United Arab Emirates and Qatar before they were upgraded to emerging market status by index compiler MSCI in May this year. Stocks soared as local retail investors bought heavily, then plunged after the upgrade took place and foreigners declined to buy at inflated prices.
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