Emerging Markets: Falcom Introduces First Saudi-Listed ETF

Investor: News

By Gordon Platt

Riyadh-based Falcom Financial Services has introduced the first Saudi Arabian exchange-traded fund (ETF) to be listed on Tadawul, the largest stock exchange in the Arab world. The decision by the Capital Market Authority to allow ETFs will further open the Saudi bourse to foreign investors, although direct share ownership by foreigners is still not allowed. The Falcom Saudi Equity ETF (Falcom 30) comprises the highest-capitalization shariah-compliant stocks traded on the exchange.

In 2008, Saudi Arabia began allowing indirect ownership of shares by foreigners through swap agreements with local brokerages, but so far these holdings account for only a few percentage points of total market capitalization. Foreigners are also allowed to invest in Saudi mutual funds.

There are some 139 companies listed on Tadawul, with a combined market capitalization of about $356 billion. The Saudi authorities have been opening the market to foreigners very gradually for fear of attracting hot money flows that could lead to increased volatility.

“Economic performance in the kingdom has been much better than in developed countries, but its stock market has underperformed,” a report by Jadwa Investment says. “We think the main reasons for this are a lack of confidence, the small role of institutional investors and a lack of investor awareness of economic conditions.” Individual investors account for more than 90% of the share trading in Saudi Arabia.