DUBAI: Saudi Arabia's stock market has opened its doors to foreign investors for the first time as the country seeks to diversify its economy amid low oil prices.
The kingdom has amassed vast wealth from its oil reserves but is now seeking to encourage foreign investment as it goes through an unprecedented period of change, after the death of King Abdullah earlier this year.
The Saudi Stock Exchange, or Tadawul, has gained more than 16pc so far this year and is now worth $550bn (pounds 355bn). In contrast, Britain's FTSE 100 index of leading shares has gained 2.7pc and is worth pounds 1.8 trillion.
The Tadawul is made up of 170 companies that are focused in banking, property and oil & gas and shipping.
The index is trading on a price-earnings ratio of 20 times and pays a 2.8pc dividend yield, which compares with the FTSE 100 on a PE ratio of 21 times and a 3.9pc dividend yield.
The five largest companies on the exchange are Al Rajhi bank, Saudi Basic Industries, which is a chemicals, fertiliser, plastics and metals specialist, National Commercial Bank, Jabal Omar Development and Savola, which is a food group.
Saudi Arabia's market regulator is trying to prevent a rush of speculative money heading to the Middle East. Accordingly, the Capital Market Authority has restricted trading to institutions and professionals classed as "qualified foreign investors" with $5bn (pounds 3.2bn) under management, and a five-year track record.
Foreign investors will not be allowed to take controlling stakes in Saudi Arabian companies, with the maximum holding of any single investor in a given company limited to 5pc. The combined holding of all qualified foreign investors in any company is limited to 20pc.
The move comes as Saudi Arabia is grappling with a sharp fall in the oil price during the past 12 months.
There are six companies from which foreign investors are still excluded. The companies are Makkah Construction & Development, Jabal Omar Development, Medina-based Taiba, Knowledge Economic City, Saudi Real Estate and the National Shipping Company of Saudi Arabia.
Mohammed Aljadaan, chairman of the Capital Market Authority, said: "[Foreign investment] will also enhance the market efficiency and motivate listed companies to improve the levels of transparency, disclosure and governance practices."
Hedi Ben Mlouka, of fund manager Duet's frontier market fund, said: "The opening of the Saudi stock market to foreign investors will give more flexibility to those seeking access to this vigorous economy.
"With daily turnover of $2bn, the Saudi market is the most liquid in the Middle East and North Africa region. Once the changes are in place, international investors are likely to want access to Saudi businesses generally and particularly to non-cyclical sectors such as healthcare and retail."