Interview: Rajiv Shukla
What has been done to increase foreign investor participation in Saudi Arabia’s capital markets?
RAJIV SHUKLA: The current level of market activity is a clear indicator of the success of recent liberalisation, reform and development initiatives in Saudi Arabia’s capital markets. More companies are being listed and the availability of new stock in the market will attract increased foreign investor participation over time.
Capital markets work best when there is constant dialogue between regulators and operators, market institutions and participants, and domestic and foreign investors. Clear rules and regulations for investors to access the Saudi market through the Qualified Foreign Investor programme have been established, catalysing inflows of billions of dollars.
Meanwhile, improving listed companies’ investor relations, including increased engagement with the global investment community, will be supported by the Capital Market Authority’s requirement to have all announcements, financial reporting and board of directors’ reports available in English.
The launch of the derivatives market in the Kingdom, as well as more diversified instruments, will also make the market more attractive to investors, as they can easily access tools to efficiently manage their risk and use sophisticated hedging methodologies.
To what extent has the investment mindset of highnet-worth entities and individuals evolved since the launch of Vision 2030?
SHUKLA: There is a clear alignment between the goals of Vision 2030 and investor interest in the sectors earmarked as key drivers of economic change, namely industry and tourism. Indeed, new growth opportunities in entertainment and tourism have attracted significant investment from individuals and businesses in Saudi Arabia, as well as from investors abroad.
The private sector’s growing contribution to the economy is enhancing Saudi Arabia’s attractiveness to investors looking to generate strong investment returns. The private sector’s contribution to GDP expanded by 3%, 8% and 6% in the first, second and third quarters of 2021, respectively.
With the implementation of the National Investment Strategy in October 2021, the private sector’s contribution to the economy is anticipated to grow significantly over the decade. One of the key initiatives of the strategy is to establish special economic zones with competitive regulations and incentives, which will create more investment opportunities in the Kingdom.
The Shareek programme, for its part, aims to strengthen collaboration between the public and private sectors to fuel growth, diversify the economy and create job opportunities. The programme is set to generate SR5trn ($1.3trn) worth of private sector investment by 2030 through financial, regulatory and operational support. This will help boost total investment in the economy to SR27trn ($7.2trn) and raise private sector contribution to GDP to 65% by 2030.
How has the global push for stronger adherence to environmental, social and governance (ESG) principles affected the Saudi debt and equity markets?
SHUKLA: Adherence to ESG principles has become an increasingly important consideration for investors. ESG financing frameworks, ESG ratings and disclosures related to ESG, more specifically, are now being assessed by investors as part of their decision-making process. As such, issuers and borrowers in Saudi Arabia are working to develop their ESG policies and frameworks to raise sustainable financing.
The Kingdom has pledged to reach net-zero carbon emissions by 2060, and as the policy and regulatory environment around ESG develops, we expect clients to expand their efforts in this regard. Indeed, HSBC Saudi Arabia has already been working closely with clients across various sectors, providing support and helping them to develop sustainable financing frameworks.
