Subscribe

With oil cheap, Saudis open stock market to foreign investment

Saudi Arabia is looking for an economic boost by opening its stock market to foreign direct investment. The OPEC mega-producer, which relies heavily on oil revenue, is weathering a low oil price environment.

  • close
    A Saudi man walks at the Tadawul Saudi Stock Exchange, in Riyadh, Saudi Arabia, Monday, June 15, 2015. Saudi Arabia's stock market, valued at $585 billion, opened up to direct foreign investment for the first time Monday, as the kingdom seeks an economic boost amid low global oil prices.
    Hasan Jamali/AP
    View Caption
  • About video ads
    View Caption
of

Saudi Arabia may be rich enough to weather the current trend of low oil prices, but it’s losing money nonetheless and has found a way that it believes could help make up for the loss: opening its stock market to foreign investors.

By opening the Tadawul Saudi Stock Exchange the country will allow its companies, especially those not involved in the oil industry, to raise money directly from foreign investors, a practice that would help Saudi businesses grow, diversify the country’s economy and create new jobs for its growing population.

The exchange – the largest in the Middle East with a value of up to $590 billion – is heavy on petrochemical firms, which make up one-fifth of the companies listed. Before it was opened on June 15, foreigners could invest in Saudi companies only through a local Saudi intermediary agency, a process that was as expensive as it was complex. (Related: Oil Prices Responding Positively To Bad News, But Why?)

Recommended: Five hopeful signs global energy is getting cleaner

Saudi Arabia, OPEC’s richest and most influential member, is the architect of the group’s strategy to keep oil production up and therefore depress prices at a time of an oil glut caused in large part by the boom in shale energy in the United States. The goal is to make shale oil, which is expensive to produce, unprofitable so OPEC nations can regain lost market share.

Some members of the cartel, including Iran and Venezuela, have expressed dismay over the strategy, saying they can’t afford to ride out a period of low oil prices. But Arab Gulf states are rich enough to survive. Still, even Saudi Arabia will feel the pinch somewhat with a budget deficit for fiscal 2015 estimated at $38.6 billion. (Related: The Front-Runners In Fusion Energy)

At the beginning of 2015, Riyadh’s treasury had an estimated three-quarters of a trillion dollars in currency reserves, but already this year it has had to draw billions of dollars from this fund to maintain spending, at least in part to pay for the government projects that many Saudi companies rely on for their own revenues.

Like this article?

Subscribe to Recharge, the Monitor's weekend digest of global energy news.
Click here for a sample.

Capital Economics, a financial analysis firm in London, said in a statement that substantial new foreign investment could “help to plug some of the external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves.”

In a statement, the investment bank Alistithmar Capital of Riyadh called the opening of the Tadawul exchange the start of a “historic transition period” for Saudi industries because its listed companies will have access not only to broader sources of capital but also international expertise in shaping their business models. (Related: Peak Oil: Myth Or Coming Reality?)

The bank said foreign investors will benefit too, gaining access to some of the most promising companies in the Middle East that provide goods and services to the most populous Arab nation in the region.

“As the largest and most liquid market in Middle East and North Africa, there is understandably significant interest in and excitement about this event,” Khatija Haque of the Dubai-based bank Emirates NBD told The Wall Street Journal.

“From an economic perspective, the move is timely, as foreign portfolio inflows would help to offset an expected deterioration in the current account surplus this year,” she said.

By Andy Tully of Oilprice.com

More Top Reads From Oilprice.com:

Original story: http://oilprice.com/Latest-Energy-News/World-News/Lower-Oil-Revenues-See-Saudi-Arabia-Open-Up-Stock-Exchange.html

Source: http://oilprice.com/

The Christian Science Monitor has assembled a diverse group of the best energy bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK