Traders monitor Saudi stocks in a Jeddah bank. (AN photo by Khidr Al-Zahrani)

JEDDAH, 21 March 2006 — Saudi Arabia announced yesterday that it would allow some six million foreign residents to invest directly in its stock market from Saturday as part of efforts to strengthen the bourse, the largest in the Arab world.

The Capital Market Authority (CMA) made the announcement following directives from Custodian of the Two Holy Mosques King Abdullah who last week called for a study on allowing expatriates to invest directly in the bourse.

“We will implement the king’s directives from this Saturday and are now coordinating with banks and other relevant institutions to complete the technical arrangements required for the purpose before that date,” the CMA said.

The Kingdom’s Tadawul All-Shares Index (TASI) finished trading at 16,836.87 points, up 2.7 percent on Sunday’s close after fluctuating sharply during the day. The TASI is now up 0.75 percent from its 2005 close of 16,712 points and 18.4 percent off its all-time high of 20,634.86 points on Feb. 25.

“I believe the market will continue to fluctuate for some time,” said Ali Al-Jaafari, head of Al-Muasher Financial Consultants. “Weaker companies are still dropping after rising astronomically for several years... Some traders are still incurring losses, which is putting pressure on the index.”

Yesterday’s surge was led by heavyweights SABIC, which rose 4.41 percent, Saudi Electricity Co. with 4.76 percent and Saudi Telecom with 4.95 percent, almost touching the maximum five-percent CMA limit on growth or loss allowed in a day.

Up to now, foreign residents could invest in the bourse only through mutual funds. Saudi economists put the expatriate community’s earning at $35 billion a year of which $15 billion gets transferred out of the country as remittances.

“The new move will inject more liquidity in the bourse... but it needs to be accompanied with the speeding up of listings,” said Abdul Wahab Abu Dahesh of the Saudi Economics Association.

Analysts doubt that foreign residents would immediately flock to the bourse because of its current high valuation ratios. A similar measure in Qatar prompted local residents to push up prices even higher. More than three million Saudis trade regularly in shares.

“To begin trading on the stock market, the expatriate needs to have a bank account here and a valid iqama and sign an agreement with the Saudi Arabian Monetary Agency that covers things such as money laundering and other regulations,” Abdul Aziz Al-Zoom, spokesman for CMA, told Arab News.

He said there are no rules related to minimum account balance or salary and no restrictions on what companies they can trade stocks in or the number of shares they own.

“If there are any restrictions on companies, percentage of stock ownership and IPOs it will be announced within the next few days before Saturday,” he said.

Currently, Saudis trading on the stock market do so through banks. According to sources in different banks, for Saudis to open a stock portfolio account at the branch where there is a trading hall, they only need to bring in an ID and sign the SAMA agreement. But to trade online they would need to have a minimum account balance that differs from bank to bank; some ask for SR50,000 while others ask for SR250,000.

“That amount is required because trading online needs certain restrictions on transactions to protect investors and to minimize pressure on the system,” said a source. The banks also charge an annual fee of SR1,000 for the account.

It is expected that expatriates might need to have a minimum account balance for the banks to open a stock investment portfolio for them. This means only professionals or those having high income will be able to trade on the stock market.

The Saudi bourse has gained more than 620 percent since late-2002 on the back of rising oil prices, higher wages for the public sector and speculation. A sharp correction, which started in late February, however, trimmed its capitalization by 31 percent in only two weeks.

“I think the CMA has acted really fast by allowing the expatriates to invest in the bourse,” said Bandar Abo Al-Shamat, a financial analyst with Bank Aljazeera. “A big decision like this should have been studied more carefully for at least a couple of months,” he told Arab News.

Abo Al-Shamat cited four reasons that demanded a careful study on the issue.

“First, the stock market is still under shock and trying to heal after its biggest loss, financially and psychologically. Second, they should allow the GCC investors to get into the market as a priority over expatriates. Third, the market is still unbalanced after the five-percent restriction. Fourth, the Saudi investors need to gain back the market and CMA trust,” he said.

Mohammad Al-Howaish, who is in charge of stock market operations at Aljazeera Bank, said the CMA would lift the five-percent restriction today. According to him, the authorities will not allow expatriates to invest in the stocks of banks and Taiba and Makkah Construction companies.

An official from National Commercial Bank said the entry of expatriates would further shoot up stock prices. The official, who requested anonymity, said a large number of foreigners was already investing in the market either through Saudi friends or using mutual funds.

Jamaluden Umpat, technical support manager in a French firm, urged authorities to make stock transactions available on the Internet for all banks in the Kingdom. At present the facility is available only with two banks.

“In the case of others, we have to visit the bank and fill out forms, which is a tedious procedure,” he said. Umpat also advised authorities to put a ceiling on shares that expatriates could buy to prevent manipulation of the market.

(Javid Hassan in Riyadh contributed to this report)