Jadwa Investment: Shifts in Foreign Investor Flows and the TASI
Jadwa Investment | 10.9.12
A recently released Jadwa Investment report discusses shifts in foreign investment in the Saudi stock market, also known as the TASI.
“Big changes in foreign investment in the Saudi stock market tend to come ahead of moves in the TASI, meaning that local investors can benefit from tracking what foreign investors are doing. In six of the seven cases in which monthly net foreign investment flows have moved by over SR750 million, the TASI has moved in the same direction as this change the following month.
We think this is because foreign investors are more in touch with global trends and are quicker to rebalance their portfolios than domestic investors who are focused on local events,” Jadwa revealed.
“Foreign investors have had access to the Saudi stock market since the swap agreement was introduced in August 2008 and data on the trading activity of foreigners has been published since March 2009. They account for only a small proportion of trading; a daily average of 1.1 percent since March 2009 and just 0.7 percent over the first nine months of this year. In contrast, since March 2009 Saudi retail investors have accounted for 89 percent of total trading.
“Despite their small participation, activities of foreign investors can give an important signal to local investors. We determine this by taking the change in net purchases of foreign investors versus the previous month and then comparing it with the change in the TASI the following month. For example, foreign net purchases in January 2012 were SR257 million, compared to SR153 million in December 2011, an increase of SR104 million. In the following month, February 2012, the TASI rose by 9.7 percent.
“When all 41 months are examined between March 2009 and September 2012, there is little relationship. In 25 of these months the market moved in the same direction as the change in foreign investment flows over the previous month and in 16 months the TASI moved in the opposite direction. This is not a surprise as in many cases the monthly moves in flows of foreign investment are small and do not reflect changes in sentiment toward the Kingdom.”