Even in the era of falling oil prices, Saudi Arabia's stock exchange dominates investment in the six-country Gulf Cooperation Council. But international investors looking for new horizons must take note: This is a marketplace only for those with very deep pockets.
- Regulations limit foreign investment in Saudi stocks to financial institutions and billionaires.
- Further restrictions limit the number of shares any foreigner can buy.
- Investors without the deepest pockets can get exposure to Saudi stocks through a number of ETFs.
The Saudi Stock Exchange, or Tadawul, permits only established institutional foreign investors, not individual investors, to trade. A qualified foreign investor, for the purposes of the Saudi exchange, has at least $5 billion in assets under management and has been in business for at least five years.
Investors who aren't billionaires can invest more modest amounts in Saudi Arabia and the surrounding region through any of a handful of exchange-traded funds (ETFs) that focus on Middle Eastern companies. Examples include the SPDR S&P Emerging Middle East and Africa ETF (GAF) and the WisdomTree Middle East Dividend Fund (GULF).
Limits to Direct Investment in Saudi Stocks
There are a number of other limits to direct investment in Saudi companies:
- A foreign investor may own no more than 5% of the shares issued in any one company.
- All foreign investors (resident or non-resident) may collectively own no more than 49% percent of any company's shares.
- All qualified foreign investors collectively are limited to 20% of a single company's shares and 10% of all of the shares of all of the companies listed on the exchange.
Foreigners who want to invest in Saudi Arabian stocks generally work through one of the global institutions that do business there.
Limits on foreign ownership prevent foreigners from gaining majority control of Saudi companies.
Morgan Stanley and Credit Suisse Group are among the global banks that have offices in Riyadh. These branches act as hubs for brokers and qualified foreign investors that invest in any of the GCC nations.
About the Tadawuhl
Despite its prominent role in the Arab world, only about 150 companies are listed on the Tadawuhl. The main index that tracks its movements is the Tadawuhl All Share Index (TASI).
Not surprisingly, the state oil company Saudi Aramco, said to be the world's biggest company, is among them. Others run the gamut from the Arab National Bank to fast-food chain Al Tazaj and publisher Jarir Bookstore.
According to the Heritage Foundation, the Saudi economy has grown only modestly over the past few years due to the reduced prices and production levels of its main export product, oil. It remains one of the top 20 economies in the world and the largest economy in the Middle East.
The long slide in oil demand has forced the Saudis to work towards diversifying its economy and encouraging private enterprises not related to oil. It is even dabbling in solar energy.