JEDDAH, 17 March 2006 — The possibility of Saudi Arabia allowing expatriates to invest in the Kingdom’s fledgling stock market was met with an overwhelmingly positive response among both Saudis and expatriates. But there were others who advised caution and a few who expressed skepticism regarding the timing of the move. Previously, non-Saudis were restricted to dealing in investment funds.
Ahsan Rashid, president of the Alhamrani-Fuchs Petroleum Saudi Arabia, welcomed Custodian of the Two Holy Mosques King Abdullah’s decision. “It is a step in the right direction and will stabilize the Saudi stock market,” he said. “Most important, it will stop the flow of money out of the country. In the absence of investment opportunities here in the Kingdom, a lot of expatriates were putting their money in Western markets. That will be checked for the good of the local economy.”
Saudi stocks continued to rebound yesterday after the king’s instructions to study measures to allow foreign residents to invest directly in the country’s stock market. The Tadawul All-Share Index (TASI) gained another 749.41 points or 4.8 percent to 16,355.79 yesterday. The index gained 1,455.75 points or 9.54 percent in two days. The market turnover crossed SR8 billion yesterday.
Rashid, however, advised potential investors to look before they leap.
“A sheep mentality is not good. Don’t invest blindly. This is a relatively new market. One should look at the fundamentals of the market. Read about the company you want to invest in, follow its growth trajectory, and study its annual results. In short, do your homework,” Rashid said.
“It is a wonderful idea. It will encourage expat investment,” said a longtime Arab expatriate living in Riyadh, adding that he concurred with Ahsan Rashid that money remittances by expats would be reduced. It will also leverage the shares, he added.
David A. Wilson, a senior European executive working for the DHL Express & Logistics Company, said the move is a positive step for long-term expatriates in the Kingdom. “I, myself, will be tempted to invest some money in the local market,” he added.
Amjad Rana, CEO of Medilink Company, said a substantial percentage of the seven million foreigners working in Saudi Arabia could play a major role in the economy.
“With no end in sight to high oil prices, companies are expected to continue to return good profits,” said Rana.
“I know a large number of my Pakistani compatriots who have enough money in their wallets and who have been searching local investment channels. If the market is opened, this move will ensure more liquidity injected by expatriates,” Rana added.
“I think it’s an excellent idea,” said Amr Khashoggi, chairman of Amkest Company. “We have to look at expatriates as our partners in development, especially those who have lived here for a long time and allow them to invest in real estate too,” he said.
This is also in line with Saudi Arabia opening up to international investors after it joined the World Trade Organization, he added. As for the risks involved in the stock market, he said that the Saudi stock market is a good market, but people have to invest based on economic fundamentals and not rumors.
“Saudis and expatriates are beginning to recognize that. They need to base their decisions on true knowledge, and problem arises when there are price manipulations,” said Khashoggi.
Investors should not depend on government action. Khashoggi recommends that the government become more of a regulator and moderator in the market instead of an investor.
“The Capital Market Authority should play a major role in putting the necessary guards but should not be involved in moving the market up or down and should provide information to increase transparency and confidence. The banks should also educate investors and not lend them lots of money to throw into the stock market. There are people who are selling their properties to invest in the stock market, which is wrong,” he said.
Businessman and columnist Najeeb Al-Zamil considered the recommendations made by the government regarding the stock market as necessary intervention to rescue the market, but it makes clear the need for planning ahead to prevent future crashes.
“Before injecting more money in the stock market we should put measures to regulate it and educate the investors about investing in the stock market,” he said.
Some Western expatriates agreed that typical stock market regulations are still needed before this nascent stock market becomes one with an international reputation shared by the world’s major bourses.
The Tadawul, in their view, has several drawbacks, including a lack of transparency, an unclear system of recourse on defaulting or mismanaged companies, the perception that insider trading is rife and the lack of protection from hostile takeovers from powerful parties inside the Kingdom.
“We have already had experience with this,” said Dave J. “A company becomes very successful and suddenly it is taken over... Having been here for a long time, I would not put my money in anything like that. There is no long-term security.”
Betty G. reflected on the timing of the announcement. “The news,” she said, “was greeted with a very wry smile and hoots of derision. Use us when you want us, don’t give us the 15-percent pay rise because we are not worth it, but do ask us to invest in the failing stock market.”
She thought it was insulting that expats were invited to join a failing stock market, and only invited to take part when it’s faltering.
“We are not stock market dabblers,” she said of her own investments, “but we would be property investors.”
“Transparency is the big thing; there are no clear systems of recourse, no legal comeback, no security,” said Leslie K. “Imagine the difficulty of getting a visa if you wanted to come back to take legal proceedings against a company. The very legal system is just unclear.”
Asked about her reaction to the Kingdom’s move to allow foreign ownership of Saudi stocks, American expat Nancy K. Charles-Parker disagreed with her Western peers.
“It was a wise decision and I would like to invest in companies like Saudi Aramco and Saudi Basic Industries Corporation (SABIC),” she said.
Mohamed A. Ramady, professor of economics at King Fahd University of Petroleum & Minerals (KFUPM) in Dhahran, said the decision has to be welcomed for several reasons. “It can stem part of the annual expatriate remittances abroad, currently running at around SR55 billion, and give an opportunity for foreigners to participate more directly in the capital markets than through mutual funds,” he said.
He, however, felt the decision would affect only a small number of the more financially well-off foreigners as a majority of expatriates in the Kingdom work in low-paying jobs.
“What would be more significant in the long run,” Ramady said, “is whether Saudi Arabia will allow non-resident foreigners to enter the market, and whether there will be more instruments, such as Islamic bonds or sukuks and corporate bonds to give the capital market more depth.”
Another Dhahran-based professor, Anthony Gibson, said he would not invest in this stock market. “But then I don’t believe it’s wise to invest in stocks generally. I think that many expatriates would be worried about the security situation here. This would affect their perception of investment in the stock market. Additionally, the volatility we have seen in the market recently is not something positive for serious investors,” Gibson said.
Afsar Faheem, quality assurance manager at Saudia Dairy and Foodstuff Company (SADAFCO), thanked King Abdullah for the new policy direction and said if implemented it would change the face of the Saudi stock market.
“There are many expatriates who have been in the Kingdom for the better part of their lives and would like to invest their hard-earned riyals in the local market,” said Faheem.
He said that by investing in the stock market expatriates would have the first tangible feeling of having a direct stake in this country. “They will no longer have that feeling of being on the margins. It will dramatically change their perception,” Faheem said.
He cautioned though that the stock market is not everybody’s cup of tea and the expatriates would be well advised to continue to invest in mutual funds for the moment. “The returns there are assured,” he added.
Ghiasuddin Azizuddin, manager at Jeddah-based Basic Chemical Industries, said it was fantastic news.
“Pakistani expatriates had no options of investment here in the Kingdom. This will change the dynamics of the Saudi stock market for good and for ever,” he said.
George Alexe, a Romanian diplomat, also welcomed the decision and has plans to invest in the market. “For over two years, as the Saudi stock market continually broke all records way beyond any market fundamentals, the fear of a correction has haunted everyone,” said Alexe. “The Saudi officials deserve all praise for such a bold decision. It seems now, probably, it is a question of time only before the decision is implemented.”
— Siraj Wahab, Roger Harrison, Khalil Hanware, Maha Akeel, Molouk Ba-Isa and M. Ghazanfar Ali Khan contributed to this report
