Saudi Arabia's decision to open up its stock market for foreign investors is a strategic move by the Kingdom to seek diversification from its core oil resources and emerge as a strong financial centre in the Gulf, said an expert.

Though Saudi has approached the global investing community much later compared to its GCC peers, the timing has been perfect, given the situation of the world economy, where investors are continuously seeking alternative avenues for investment, remarked Sheela Kothari, research analyst, business and financial services practice, Frost & Sullivan.

Saudi, she said, was one of the biggest GCC markets by market cap and is supported by a relatively strong banking and financial sector compared to other GCC countries.

'Also, the Kingdom has low inflation and high growth when compared to other emerging markets. Due to all these factors, Saudi may attract considerable foreign investment.'

While this “hot money” may increase the market volatility, this may be the first step towards integration with the world markets in the otherwise protected/ domestically invested Saudi Arabian financial sector, observed Khotari.

She pointed out that involving the international investor community would increase the transparency and efficiency of the Saudi market.

'In addition, with a larger investor base, the market may see more scope for better ‘price discovery’ mechanisms in future public offerings,' the expert said.

However, Saudi has historically been conservative in its exposure to international markets and the joint role of the Capital Markets Authority and Central Bank in this regard would ensure that the changes would come into effect gradually to protect the interest of local investors and control market volatility, she added.-TradeArabia News Service