DUBAI Saudi Arabia's Bakheet Investment Group expects the kingdom to fully open its stock market to foreigners in the first half of next year, with banks and petrochemical firms most likely to attract investment, an executive said on Wednesday.
The Saudi bourse, the region's largest and most liquid stock market, has been moving toward giving foreigners access to the market, but does not yet allow direct ownership or trade in Saudi shares.
"Everything is ready. It is just a political decision needed from the higher authorities," Hesham Abu-Jamee, the firm's chief investment officer, told the Reuters Middle East Investment Summit in Riyadh.
"It was supposed to happen within the first six months of this year but there were delays because of the political situation (in the region) and worries that it might affect sentiment," he added.
Major oil producers in the region such as Saudi Arabia, the United Arab Emirates and Kuwait have avoided significant unrest which has toppled leaders in Tunisia, Egypt and Libya.
With the top OPEC producer rolling out a $400 billion infrastructure program -- the world's biggest stimulus relative to GDP -- foreigners are keen on the Saudi stock market and the biggest Arab economy.
But they make up only a fraction of trading. International investors can only buy into Saudi shares through equity swap arrangements, where a licensed intermediary in the kingdom holds the stock on their behalf, or a small number of exchange traded funds (ETFs).
"I expect that after opening up the market there will be a very high percentage of foreigners ... when they come they will look at Saudi Basic Industries Corp (SABIC), banks and big companies," Abu-Jamee said adding he expected foreigners to represent more than 25 percent of the market within three years.
Transparency among Saudi companies, a key factor for attracting foreign investment, was improving, he said.
"The Saudi market 10 years ago was very opaque and now the CMA (capital markets authority) is really improving conditions ... now we are better than we were five years ago."
In January this year, Abdulrahman al-Tuwaijri, head of the CMA, the kingdom's regulator, had said the kingdom's bourse would not be opened up for at least one or two years.
Bakheet is upbeat on Saudi banking and petrochemical shares in 2012, with firms such as SABIC 2010.SE and Saudi Petrochemical Kayan 2350.SE undergoing plant expansion, Abu-Jamee said.
But he warned that global demand for petrochemicals could drop by as much as 30 percent due to global economic woes, hitting the kingdom's export companies.
(Reporting by Asma Alsharif; Editing by Helen Massy-Beresford)