Could opening the Tadawul to foreigners be the worst timed stock market launch since the Nasdaq Dubai?

Posted on 18 March 2015 with 2 comments from readers

With the second quarter of 2015 expected to see the opening of the Saudi stock exchange, or Tadawul, to foreign direct investment this could end up being the worst timed launch of a major stock market initiative since the Nasdaq Dubai was formed in 2008 just before the global financial crisis.

True for the Gulf financial sector this could be one of the most important financial events of the year, as noted by the experts preparing for the Euromoney Saudi Arabia Conference that will be held from 5-6th May. A report by Jadwa Investment published last year suggested the initiative could bring as much as $50 billion into the market. But that assumes global financial markets do not crash before then.

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Crash coming?

Many financial commentators think 2015 could be another 2008 for financial markets with the first moves down coming sooner rather than later. Saudi Arabia already has a problem with the oil price crash that will pummel national income this year and decimate profits in its downstream oil sector. It’s not really the ideal moment to try to attract foreign investors to the Kingdom.

Although no fixed date has been announced, investors are anticipating that Tadawul will open to foreign investment by large investors in the first half of 2015, with plans already at an advanced stage. The Capital Markets Authority of Saudi Arabia published draft regulations on the types of funds that will be able to invest at the end of 2014, sparking excitement across the markets.

This year’s Euromoney Saudi Arabia Conference will feature an exclusive on-stage interview with Mohamed Al-Jadaan, Chairman of the Capital Market Authority, to provide the latest updates on the process for local and international bankers.

The event will features insights from leading figures in the financial world, such as Jean Lemierre, Chairman of BNP Paribas, who will explain how their institutions are preparing for this key moment in financial history. According to recent reports, a number of international banks have been hiring and building up their Saudi offices in advance of the opening.

Falling Gulf bourses

That said Gulf stock markets have been heading lower since last summer. The Dubai Financial Market lost 3.6 per cent yesterday and is down more than 30 per cent since last summer, a serious correction. The Tadawul has also slumped as the Saudi Arabian economy is 90 per cent oil dependent while the UAE is more diversified at 30 per cent.

There was a large pipeline of initial public offerings but all plans for new IPOs have now been shelved due to the weak market conditions. Gulf regional bond markets are also likely to come under pressure if the Fed moves interest rates higher, setting off another squeeze on emerging market debt.

In the circumstances the Euromoney Saudi Arabia Conference will provide an interesting forum to review the financial prospects within the Kingdom of Saudi Arabia. But whether this will prove the right moment to open the Tadawul to foreign ownership is less clear, nor whether anybody will be quick to buy if they have the option. This is bad market timing.