RIYADH: Saudi Arabia’s plan to name investors with strategic stakes in listed firms will help curb speculation but falls short of the corporate governance overhaul badly needed by the Kingdom to attract institutional investors.
Tadawul, the Saudi stock exchange, announced plans last week to publish the names of investors with stakes of 5 percent or more in the 124 listed firms on a daily basis from Aug. 16.
While the measure moves Saudi Arabia closer to the transparency standards of Western markets, it sent Saudi shares sharply lower. (The Tadawul All-Share Index (TASI) plunged 157.47 points to 8,469.77 yesterday.)
Some speculative funds left the market as investors feared their holdings may become public information. “The regulatory environment is still poor,” said Abdulhamid Al-Amri, a member of the Saudi Economic Association think tank.
Experts say Saudi Arabia’s struggling investment framework, where many corporate governance guidelines for listed firms remain voluntary, has loopholes that enable those determined to operate out of sight to continue to do so.
The country boasts the largest equity market in the Arab world but it remains mostly closed to foreign investors. It has encouraged a culture of retail-investor speculation that has left serious, long-term investors sidelined for lack of information or confidence.
The Saudi exchange is struggling to shed an opaque image and has been tainted by allegations of insider trading and manipulation. Stock prices react more to rumors than to the performance of listed firms.
These practices have been widely blamed for contributing to a crash in 2006 that hurt hundreds of thousands of Saudis many of whom blamed the government for not protecting them from the clout of big players.
The exchange has never managed to recover its poise from the crash. It has lost about 60 percent of its value since 2006 and is the worst performer in the Gulf Arab region this year.
Walid Bin Ghaith, chief executive of The Investor for Securities brokerage and asset management firm, praised Tadawul’s efforts but said more needed to be done. “It’s a very important step ... But it will not deter fraudsters. It will make their job harder,” he said.