Interview: Khalid Al Hussan

How can capital markets help to fulfil Vision 2030?

KHALID AL HUSSAN: Vision 2030 underpins the government’s efforts to modernise the economy, stimulate private sector growth, diversify away from hydrocarbons, privatise state-owned enterprises, reform markets and reduce subsidies. There was early recognition that capital market reform is the linchpin to unlock the economy’s potential and stimulate private sector growth. Over the past two years Tadawul and the Capital Market Authority have implemented far-ranging reforms to enhance the market’s effectiveness, foster an attractive environment for local and foreign investors, and align its regulatory frameworks with international best practices. Looking ahead, the goal is to become both a global destination and source of capital.

In what ways have the changes made to the qualified foreign investor (QFI) programme helped in broadening investor participation?

AL HUSSAN: The QFI programme is continuously being updated to broaden access and ease eligibility requirements for international investors. For instance, in January 2017 the Saudi market for initial public offerings (IPOs) was opened to foreign investors. The following month a parallel market called Nomu was launched for small and medium-sized enterprises, which is also open to non-resident foreign investors. We have also observed the introduction of new asset classes, such as real estate investment trusts, as well as the launch of trading in government debt instruments.

How have new asset classes affected liquidity and inflows of foreign capital?

AL HUSSAN: All three of the world’s leading index providers – MSCI, S&P Dow Jones and FTSE Russell – recently decided to upgrade the Kingdom to emerging market status in their indices. The changes that Tadawul has undertaken have not only strengthened the market’s effectiveness, but also paved the way for fulfilling the criteria used by these indices in market classification. Index inclusion, which will happen in phases over the course of 2019, will result in significant investment inflows and expanded opportunities for investors to gain exposure to the Saudi market. This will further boost liquidity in what is already one of the most liquid emerging markets in the world.

In what ways can international index providers help develop futures contracts and options?

AL HUSSAN: The plan is to launch the first exchangetraded derivatives product – an index futures contract, based on a tradeable index jointly developed by Tadawul and MSCI – in the first half of 2019. Additional products will follow, including index options and single stock futures and options. There are other plans in the pipeline, including the launch of a market-making programme, new rules governing mergers and acquisitions, and new listing and issuing rules to make these processes easier and faster.

Where does Tadawul stand in terms of market capitalisation, relative to other markets in the region?

AL HUSSAN: Tadawul’s progress can be monitored through a range of measures that reflect the market’s vitality. For example, market capitalisation increased nearly 45% to $507bn between early 2016 and September 2018, making it the 24th-largest stock market in the world and the largest in MENA. Tadawul accounts for nearly half of the market cap and almost 80% of the trading value of the GCC’s exchanges.

In addition, since the launch of Vision 2030 the number of international financial institutions joining the QFI programme has grown from fewer than 50 to more than 720, with hundreds more institutions in the pipeline. Major institutions have established or expanded their presence in the Kingdom, the annual number of IPOs in 2017 and 2018 was more than triple that of 2016, and this figure is on track to grow in 2019.