Kingdom come: the Saudi impact on Arabian investor relations
The opening of the $570 bn Saudi Stock Exchange (Tadawul) to direct foreign ownership will have a profound impact on capital markets in the Arab world, and consequently on investor relations in the region.
The move doubles the size of the investable equity market in the Arabian Gulf region overnight. Tadawul’s investors trade a daily average of $2.5 bn worth of shares, far more than all other regional markets. And market observers expect liquidity will rise further as a result of foreign investment – especially if Saudi Arabia is elevated to emerging markets status by the MSCI in 2017.
Even ahead of the opening, Saudi Arabia worked hard to position itself as a serious financial center: Riyadh now ranks 14th in the Global Financial Centers Index published by Z/Yen Group, a leading London think tank. This puts it ahead of Doha (20th), Dubai (23rd) and Abu Dhabi (26th). Today’s opening will help Riyadh nudge yet further ahead of its regional rivals.
Access to the Saudi market will be restricted to qualified investors with $5 bn in assets under management and ownership is capped at 20 percent. Although the measures are designed to moderate flows of capital, the announcement is still a watershed for the region because the kingdom is not only the one with the largest economy but also the most conservative of the Arab nations. Its decision to allow foreign investment, no matter how measured, will force neighboring countries and their listed companies to consider where future capital flows are headed.
No matter how gradually the kingdom moves down its path, it will be difficult for the region’s policy makers and captains of industry to ignore the ripples of Saudi’s move; it is already a formidable competitor for regional markets. Companies, regulators and investors know that with Saudi’s historic shift, the capital markets landscape will change. It will become a more competitive environment, where investors expect and demand world-class management, and only the best performers will win.
This means a brave new world for investor relations practitioners, not just in Saudi, but also across the region. Many companies in Saudi and the region still benchmark themselves against their local peers. But in a market that is truly connected to global capital flows, this will not be enough: they need to assess themselves against their global peers. On a strategic level, company boards and senior management should change the way they interact with investors to gain greater levels of trust, and this means committing to international best practice and increasing the resources available to their investor relations departments.
IR teams are in turn required to take a more analytical approach to understanding who is trading their shares and why; they must develop a clearly articulated strategy and investment case and systematically target investors that fit their profile. On an operational level, they have to be more proactive at keeping international investors informed through roadshows, investor presentations and quarterly earnings calls, and make more information available on their websites.
In the end, the Saudi opening is a great opportunity, but also a potential threat. This will become especially clear when the kingdom eases its access restrictions and admits more international asset managers. To take advantage of this sea change, regional companies must realize they no longer occupy the high ground with respect to attracting investors.
Above all, they will need to go beyond the minimum standards required by the market authorities and aim for excellence. How well companies relate to those investors that now have the option to invest in the biggest, most liquid market will quickly determine where they stand.
Oliver Schutzmann is CEO of Iridium Investor Relations, chairman of the Middle East Investor Relations Society, and former head of investor relations of SHUAA Capital