How can a mature market be created that is research-based rather than rumour-driven?
ADEL AL GHAMDI: Individual investors currently account for around 90% of monthly trading value, but their ownership in the stock market only represents roughly 35% of capitalisation as of December 2013. The remaining 65% is owned by institutional investors in the form of government-related entities, corporates and collective investment schemes. These figures suggest that the Saudi equity market is largely held by investors driven by fundamentals rather than by rumours.
Furthermore, the individual investors making up 35% of the market can be placed into three different segments: sophisticated high-net-worth (HNW) and ultrahigh-net-worth (UHNW) individuals acting on their own accord; HNW and UHNW individuals acting through professionally managed discretionary portfolios; and retail investors, who are the likeliest to make rumourdriven investment decisions.
Both the Saudi Stock Exchange and the Capital Markets Authority (CMA) have made significant efforts to enhance investor behaviour by raising awareness, particularly at the retail level. Indeed, the Saudi Stock Exchange recently introduced the IFSAH eXtensible Business Reporting Language-based issuer disclosure system, a platform that allows issuers to post bilingual financial disclosures using standardised electronic templates designed to strengthen the investment decision-making process by making it easier for investors to compare performance indicators across companies.
In what different ways is the Saudi Stock Exchange working to internationalise the local bourse?
AL GHAMDI: As the most liquid stock market in the region, we have registered keen interest from GCC companies seeking to list on our platform. We have been working closely with the CMA and financial intermediaries to develop a suitable framework to facilitate such listings, while complying with the general requirements of the CMA’s listing rules. We have also recently taken steps to develop more formalised relationships with regional and international exchanges, such as the Abu Dhabi Securities Exchange, Bahrain Bourse and Bursa Malaysia, with the aim of collaborating on important capital market initiatives, including cross-listings.
As the capital market infrastructure currently stands, it is likely that the first potential cross-listing in the Kingdom might come in the form of a Saudi depositary receipt, due to the high level of customisation such a security is able to offer.
How would you assess the current state of the local debt market and its likely future development?
AL GHAMDI: Stakeholders across the capital market have been active in trying to stimulate debt offerings, with the aim of developing this key channel of corporate funding. The CMA’s efforts in the approval of the Saudi Electricity Company’s public sukuk (Islamic bond) offering, which underwent an accelerated regulatory approval process, has been a step in that direction.
In considering future developments in the debt capital market, it is worth noting that close to 90% of all debt offerings conducted in the Kingdom between 2004 and 2013 were affected by way of private placement; the remaining 10% were conducted via the more complex public offering route. However, regardless of the method in which these securities were offered, they were ultimately almost exclusively directed and allocated to sophisticated and institutional investors, with insignificant retail participation.
These statistics serve to advocate the establishment of a professional debt market as a venue for listing privately placed securities, with trading activity restricted to sophisticated investors. This would facilitate an immediate and exponential enhancement to the debt capital market in terms of visibility, breadth, depth and secondary market liquidity. Such a venue would also serve to expedite time to the market for new issuers, while diminishing overall filing costs due to the less stringent requirements imposed on private placements.
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