The number of qualified foreign institutions (QFIs) in Saudi Arabia has more than doubled over the past year, as the kingdom has introduced a broad set of reforms to its capital markets, the chairperson of Tadawul said.
“There are more than 120 QFIs to date and this number is significant, because it was less than half of this last year,” Sarah Al Suhaimi, chairperson of the Saudi stock market said on Thursday at the Milken Institute MENA Summit held in Abu Dhabi.
“The qualified investors’ programme went through several iterations and the latest one was last month,” she said, explaining that rules were updated to allow QFIs to participate in trading on the market with lighter capital requirements.
In January this year, the Saudi regulator said that it will ease requirements for foreign institutional investors in its bourse from January 23. Changes made included lowering the minimum assets under management required to qualify as an investor from $1 billion to $500 million.
Global index compiler MSCI has placed Tadawul on a ‘watch list’ for its emerging market index. A decision on whether the Saudi market will be included in its is emerging market index is due to be made in June this year.
“Everything from the perspective of being ready for an inclusion is done by Tadawul,” Al Suhaimi said.
Observers expect a positive decision from MSCI on Saudi, given that the Arab world’s largest stock market has been bringing its system closer in line with international practices, including changing its trade settlement cycle date from T+0 to T+2.
“As the new regulations come in and time comes closer to an expected decision from indices, the number of QFIs has been increasing rapidly,” said Al Suhaimi, who is also CEO of NCB Capital.
FTSE Russell, a London-based index compiler, also left Tadawul off its emerging markets index in September last year, but it said that given the reforms that have taken place, it is expected to meet the requirements to be included as a “secondary emerging market index” early this year.
If the MSCI upgrade goes forward, Al Suhaimi said that Saudi will see a significant inflow of foreign funds, including $25 billion from passive investors alone into the 32 major Saudi stocks identified by MSCI as equities that would gain emerging market status.
“Continuous improvements and developments will continue on happening and we have major projects coming in, including the clearing house by end of this year, which is a requirement to have derivatives in Saudi, and many other developments in the structure,” she said.