By Ovunc Kutlu
ANKARA
Saudi Arabia's stock exchange is now open to foreign investment, and the move offers benefits to Turkey, but also poses new risks, experts told Anadolu Agency on Tuesday.
The kingdom, which is the biggest crude oil exporter in the world, opened its stock exchange Tadawul to investment by foreigners and foreign companies on Monday. The stock market is the largest in the Middle East with a market capitalization of around $530 billion.
The newly opened market will provide stiff competition for Turkey's Istanbul exchange, analysts said. "There is the possibility of investment flowing away from Turkey's energy and oil companies to Saudi Arabia," Gizmen Nalbantli, a research analyst at foreign exchange company IsikFX in Turkey, told Anadolu Agency.
"Foreign investment for Tadawul will come from developing countries in the region. This may have a negative effect on the Istanbul stock exchange," he added.
Borsa Istanbul had market capitalization of around $220 billion in 2014.
Turkey's banking and industry sectors are more advanced than those of the kingdom, Nalbantli said. As a result, Tadawul will not compete heavily with Istanbul at first. However, it will affect other stock markets in the region from the start, Nalbantli said.
"Funds and foreign investors from the U.S. and the U.K. may turn towards the powerful oil industry firms in Saudi Arabia. This would increase the competition in the region as Tadawul would become a strong competitor with stock markets in Dubai, Doha and Bahrain," he added.
Turkey's opportunities
Meanwhile, another expert said that Turkey may benefit from Tadawul if it builds ties with it and with markets in other countries on the region.
"Tadawul does not have much potential in the short-run and its effect on Turkey will not be too great," Gokhan Sen, vice president of international markets research at Ak Investment in Istanbul, said.
"It could be strategically beneficial for Turkey, which aims to become a financial hub on the region in the long-run, to strengthen its relations with Tadawul and other capital markets in the region," he explained.
Noting that Tadawul, which has a daily turnover of $4 billion, does not have any liquidity problems and is five times bigger than Dubai's stock exchange, Sen said the move to open up will contribute into modernization and liberalization in Saudi Arabia.
"I find Tadawul opening up to foreign investment positive. It will develop financial ties between countries and increase investment opportunities on the region," Sen told.
Diversification of Saudi economy
Tadawul’s opening up to foreign investments is also expected to benefit the Saudi economy, which is highly dependent on oil revenues.
"The Saudi economy is largely driven by energy, public sector and finance based companies. The inflow of foreign investment will help the economy to diversify into new sectors, namely, information technology, education, infrastructure, chemicals, automotive, metals and manufacturing," said K. Vinod Cartic, a senior consultant at business and financial services of the global consulting firm Frost &Sullivan.
"The kingdom's pivotal position on the globe, bridging the east and the west, implies that sectors like aviation and transportation will also have a huge role to play in the future, thus granting a more holistic look to the currently ‘oil- skewed’ Saudi economy," he added.
Saudi economy has been growing at an annual average rate of six percent, while 90 percent of all revenues come from oil, Cartic said.
"Frost & Sullivan estimates that, once its capital market opens up, Saudi Arabia will have a 4 percent weight in the Morgan Stanley Capital International (MSCI) emerging market index. This would imply that hundreds of billions of dollars would flow into investments in the kingdom," he concluded.
MSCI is a stock market index used as a common benchmark for stock funds worldwide. It includes securities from 23 countries, however does not include all exchanges in emerging economies.
