(Bloomberg) -- The operator of Saudi Arabia's stock exchange said foreign investors' exposure to the bourse isn't high enough, showing that they're missing out on returns that have beaten most emerging-market peers.
While flows have been positive for the the past five years, “the representation of foreign investors in the market is still, in my opinion, not at the level we would anticipate,” Khalid Al-Hussan, the chief executive officer of Saudi Tadawul Group Holding Co., told Bloomberg Television at the Saudi Capital Market Forum 2024.
The kingdom makes up 4.3% of the MSCI Emerging Markets Index, an increase from about 1.5% when it was first included in the benchmark in 2019 and has outperformed ever since. The Tadawul All Share Index's gains have extended this year, with the benchmark rising for the past 13 days, the longest such streak since 2003.
Saudi Arabia's market has been thrust into the spotlight amid a rush of in-demand initial public offerings which isn't showing any signs of slowing down. The number of emerging-market funds with exposure to the country has been picking up amid plans to diversify the economy and a steady stream of reforms designed to encourage more foreign participation.
Still, these investors remain underweight relative to the benchmark.
The operator is doing what it can to promote Saudi Arabian stocks by informing international investors about the market and its regulatory and operating framework, Al-Hussan said. It is also expanding its offering of securities to add depth, such as last year's introduction of single stock options contracts.
Al-Hussan said there is more than enough liquidity to support new listings, with almost 60 applications under review.
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“The historical IPO coverages is just the testament of what is the capacity of the Saudi capital market,” Al-Hussan said. “What we have seen in previous IPOs, and the daily liquidity in the market gives us the confidence that the Saudi capital market, specifically the exchange, can strongly observe any required liquidity by any new IPOs coming.”
--With assistance from Sarah Halls and Gaia Lamperti.
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