Low oil prices, rising taxes to hit Saudi stock market

Dhaka,  Thu,  24 August 2017
Published : 11 Jun 2017, 21:43:49

Low oil prices, rising taxes to hit Saudi stock market

DUBAI, June 11 (Reuters): Saudi Arabia's financial sector is hoping for tens of billions of dollars of foreign portfolio funds to start flowing into the country this month, but the money may do little to boost a stock market depressed by low oil prices and rising taxes.

On June 20, global equity index compiler MSCI will announce whether it is putting Saudi Arabia on a list for possible upgrade to emerging market status. Index firm FTSE will decide in September whether to make Riyadh a secondary emerging market.

Then in late 2018, authorities aim to list national oil giant Saudi Aramco in Riyadh, selling about 5 per cent in what is likely to be the world's biggest initial public offer of shares.

All three events promise to draw large flows of passive funds - money that benchmarks itself against international indexes - to Saudi Arabia, and by raising the kingdom's profile among global investors, attract a volume of active funds that could be even larger over the next couple of years.

"Saudi Arabia will become tied to significant global capital flows. The market could be larger than Turkey, larger than Thailand, possibly larger than Mexico," said Asha Mehta, portfolio manager at U.S. based-Acadian Asset Management, which manages over $77 billion of assets globally.

Only about 60 institutions have become Qualified Foreign Investors in the Saudi bourse since it opened to direct foreign investment in mid 2015; the index changes and Aramco's listing could increase that number.

"The process is gradual, but the boost to liquidity and market capitalisation in Saudi will make some institutions which have been hesitating decide to enter," said Sandeep Srinivas, senior analyst at FIM Partners in Dubai. But there are signs the inflow of foreign money into Saudi Arabia may be slower than some investors are hoping, and that it may not trigger a strong rise in the Saudi market. Low oil prices are keeping buyers wary, while austerity steps planned by the government, as it confronts a huge budget deficit, will dampen corporate profits.
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