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Banks act on Saudi's foreign investment shift

DUBAI, United Arab Emirates - Major investment banks said on Wednesday that they have begun trading under new rules by Saudi Arabia that allow foreigners their first-ever access to individual stocks listed on the kingdom's exchange, the largest in the Middle East.

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Saudi authorities announced the major policy shift a week ago, but it was uncertain when trading would begin. Investors previously could invest in Saudi stocks only through locally run mutual funds _ a restriction observers said limited outside investment in the kingdom.

“This effectively allows international investors to pick and invest in a single stock or a couple of stocks as they please," said Jamal Alkishi, chief executive of Deutsche Securities Saudi Arabia, a subsidiary of Deutsche Bank AG.

Deutsche Securities and the Saudi arm of Morgan Stanley said they began making trades under the new rules Tuesday. The head of HSBC Holdings PLC's Saudi subsidiary said the bank also began making similar trades Wednesday.

Other large banks are expected to follow suit.

Under the new regulations, foreign buyers can enter into transactions known as swap agreements with local branches of investment banks. The arrangement lets investors take advantage of movements in Saudi shares even though they are prohibited from owning them outright.

Some 60 companies are authorized to carry out swap trades on the Riyadh-based exchange, known as the Tadawul, according to a list on the CMA Web site.

Most buyers are likely to be large institutional investors, industry experts said.

Alkishi said the new policy should help increase investment in the Saudi stock market, which has slumped nearly 19 percent since the start of the year even as billions of dollars flowed into the country as a result of high oil prices.

“We're quite confident that the interest is going to be quite significant," he said. “There is a lot of money on the sidelines in the West and other places that is looking for a home. ... The global investment community is gaining more and more confidence in the way the Saudi capital markets operate."

Still, boosting investment in one of the world's most tight-knit societies could take time.

“You won't necessarily see a flood of money coming in. But I think fund managers will be looking to see which stocks represent good value," HSBC Saudi Arabia CEO Tim Gray said. “Over time, you will see foreign investors representing a reasonable percentage of the market. What that share will be is hard to tell."