Foreigners bought a record $384 million of Saudi Arabian stocks on a net basis last week, showing international interest in the market is continuing to grow ahead of the planned listing of oil giant Saudi Aramco in Riyadh late this year or early next.
Foreign investors purchased $615 million of stocks and sold $231 million in the week through Thursday, compared to net buying of $206 million in the previous week, exchange data showed on Sunday.
The previous record for net buying was $367 million in the week to March 15. Foreigners have been net buyers every week this year for a total of $2.76 billion.
Last month global index compiler FTSE Russell decided to upgrade Saudi Arabia to emerging market status, and MSCI is widely expected to make a similar decision in June. These moves, and the Aramco listing, are expected to attract billions of dollars of fresh foreign money.
“Passive” funds linked to FTSE and MSCI indexes will only begin flowing in when the upgrades take effect in stages next year, but “active” foreign funds with more discretion to move have already started to enter.
Foreigners still own only about 5.0 percent of the Saudi stock market, a lower ratio than in many emerging markets; fund managers think the country could attract around $30-45 billion of equity fund inflows in the next two years.
Sunday’s data also showed trading by qualified foreign institutions (QFIs), which invest in the market directly, exceeded trading by foreigners using the indirect method of swaps by a factor of about three to two last week — a much bigger ratio than in past months.
Many foreigners continued to use swaps after the market was opened to direct investment in mid-2015, but the latest figures suggest the QFI programme may finally be taking off. Over 120 institutions now have QFI status and 180 others have begun the qualifying process, the exchange said in March.
Saudi authorities want to promote investment through QFIs instead of swaps in order to get foreign capital participating actively in local companies, a goal of economic reforms designed to reduce the kingdom’s reliance on oil exports.
In contrast to swaps, QFIs have legal ownership of listed shares and can exercise shareholder rights such as voting and nominating representatives to the board.
