Mohammed H. Zakaria, Jeddah published in Arab News on 20 March 2006

Stock Market

King Abdullah’s recent statement on the possibility of allowing foreign residents to invest in the Kingdom’s stock market, though widely welcomed, does not mean immediate opening of the door. There is a long way to go before the proposal becomes a reality. It needs a detailed technical and legal debate and complete revision of residency and sponsorship laws before any such law is passed, implemented and practiced.

If the move has the aim of boosting liquidity and bring stability into the stock market, I am afraid it may not serve the purpose. Foreign residents, being short-term investors, will bring more chaos and uncertainty to the market.

The government obviously wants to see the market stable. In that case, it must first look for the causes of volatility.

The government’s decision to allow individual Saudis to participate in IPOs is the root of all the problems. It has dragged every Saudi citizen into the stock market. In fact, the four-million-plus individual active investors in the Saudi stock market may include the entire Saudi male population.

Giving stock-owning option to foreigners will automatically give them legal right to own physical assets of the company and open another Pandora’s box, releasing much larger ills than the stock-market mayhem. An expatriate sponsored and employed by, say, a Ghamdi or Harbi may be found owning enough SABIC shares giving him/her the right to sit in the boardroom. The question is:

Is Saudi society and culture ready to see an Indian making a hostile takeover of SABlC?