Saudi Arabia's Tadawul, the capital market operator, said foreign investments in the stock market are not high enough, and therefore they are missing out on profits that exceed the returns from investing in most emerging markets.
While inflows have been positive over the past five years, foreign investor representation in the market is not at the level we expected, Khalid Al Hussan, chief executive officer of Saudi Tadawul Holding Group, told Bloomberg TV during the Saudi Stock Exchange Forum 2024.
The kingdom makes up 4.3% of the MSCI Emerging Markets Index, up from around 1.5% when it was first included in the index in 2019 and has outperformed since then. The Saudi stock market has continued to gain since the start of 2024, with the index rising uninterruptedly over the past 13 days, its longest such streak since 2003.
Saudi Arabia is in the spotlight amid a rush of IPOs that shows no signs of slowing down.
The number of emerging market funds investing in the kingdom has increased amid plans to diversify the economy and continued reforms designed to encourage more foreign participation. However, the contribution of those foreign investors to the Saudi stock market index remains low.
Launching stock options contracts
Al-Hussan said the market operator is doing its best to promote Saudi stocks by informing international investors about the market and its regulatory and operational framework. It is also working to expand its offering of securities to deepen the market, such as launching single stock options contracts last year.
He explained that liquidity is sufficient to support new listings, with approximately 60 applications under consideration. He said that the historical coverage of public offerings is a testament to the capacity of the Saudi financial market. What we have witnessed in previous public offerings and the daily liquidity in the market gives us confidence that the Saudi financial market, specifically the stock exchange, can strongly provide any liquidity required for any upcoming new public offerings.
