Saudi Arabia's stock market rallied more than five per cent yesterday as investors piled into blue chips on a new rule that allows foreigners to buy shares through licensed Saudi intermediaries for the first time.

The benchmark index of the largest Arab bourse, which is down more than 18 per cent this year, jumped 5.18 per cent to 8,901.90 points, its biggest one-day gain since April 2007.

Yesterday was the first trading day after the Saudi market regulator said on Wednesday that foreigners were now entitled to buy shares through certain licensed Saudi investors, who would be the legal owners of the shares.

"Foreigners have been waiting a long time for this step," said Hesham Abou-Jamee, head of asset management at Riyadh-based Bakheet Investment Group.

"The market is reacting to the news. At 8,000 points, the market is very low, and a lot of stocks are trading at good value."

The Capital Markets Authority took the step to diversify the investor base of the Gulf region's worst-performing benchmark this year. The economy of the world's top oil exporter, by contrast, has been surging on a six-fold rise in oil prices since 2002.

Saudi Basic Industries Corp (Sabic), the world's biggest chemicals company by market value, gained 6.4 per cent to 133 riyals, a discount to HSBC's 210-riyal target price for the stock.

Al Rajhi Bank, the largest Gulf bank by market value, jumped 7.98 per cent. The index extended a nine-day rally to 12.9 per cent.

"The market is becoming more rational," said Abdulhamid Al Amri, member of the Saudi Economic Association. Local investors and investment banks associated with global banks were the main buyers on Saturday.

"Investors know that they will foreign capital will not be interested in short-term gain and will seek stocks offering real growth potential," he said. The measure could hit other Gulf bourses as foreign institutions shift funds to Saudi Arabia, Amri added. Long dominated by day traders, the Saudi stock market has been trying to improve transparency and gain more institutional investors since a market crash in 2006, when the index crashed 64 per cent from peak to trough that year.

The Kingdom's market has been the least open among Gulf Arab bourses to foreign investors, up to now giving non-resident foreigners access to stocks only through select funds.

The new rule should translate into direct demand for underlying shares, EFG-Hermes said in a note.

"This change has come at a time when the Saudi stock market is trading at trough valuations," said the Egyptian investment bank, which named Sabic and Al Rajhi among 'favoured stocks'.

The new foreign ownership rule comes one week after Saudi Arabia's market operator Tadawul implemented a transparency rule whereby the exchange names investors with stakes of five per cent or more in listed firms.

The exchange also said in July it planned to adopt a more flexible pricing system to better reflect what investors deem to be the fair value of stocks.



IPOs may be delayed

The initial public offerings of the Saudi firms Etihad Atheeb Telecommunication Company and Optical Communication Company could be delayed after the Saudi Public Pension Agency (PPA), declined to subscribe to a stake of five per cent in the capital of the two companies, Riyadh-based Al Jazirah said.

The two companies have notified the Saudi Capital Market Authority of the PPA's attitude, in order to know what to do with the five per cent stake that was allocated to it.

The two companies, which are part of the three firms licenced for the third fixed-line telephone services, would either add the five per cent stake to each firm's IPO or add it to the founders' stake.