Reports that the Saudi stock exchange (Tadawul) is considering opening to direct investment from abroad raised hopes that the market may be able to reverse a steady slide in trading value over the past five years. Retail investors have become increasingly risk averse, in the wake of the boom and bust of the previous decade, and local institutional investors have failed to fill the gap. According to the Reuters news agency, the management of 29 representatives of banks and brokerages operating in the kingdom's capital market were invited to a meeting at the Capital Market Authority (CMA) in December, at which the question of handling foreign investor accounts was discussed. The agency quoted bankers as saying that they were confident that the market would be opened up to direct investment from abroad in the first half of 2011. Abdelrahman al-Tuwaijri, the head of the CMA, dismissed the Reuters report as speculation, and said that there were no plans to change the current regulations. However, it is clear that Saudi policymakers are at least considering the issue.

There are currently 146 companies listed on the Tadawul with a total market capitalisation of about US$360bn. The Tadawul All Share Index (TASI) peaked in early 2006 at just over 20,000 before tumbling by more than half in a matter of months. It staged a recovery in 2007 and the first half of 2008, but then crashed again in response to the global financial crisis (and the sharp fall in oil prices after it hit a peak of US$147/barrel in June that year). Saudi investors have been chastened by these experiences, and the value of trading has fallen steadily since it peaked at SR5.3trn (US$1.4trn) in 2006. According to the latest Tadawul annual report the value of shares traded in 2010 was only SR759bn. The TASI has risen in each of the past two years (up by 27.5% in 2009 and 8.2% last year), but is still well below its level in 2004, when the boom was starting to build.

However, arguably the timing of such a move is not especially propitious. Confidence may be knocked by the recent uncertainties that have afflicted the regional political scene. The Tadawul started the year in the middle of a bull market, with Banque Saudi Fransi's highly regarded business confidence index for the first quarter, published in December, showing that fully 75% of respondents thought that the outlook for equity markets would be positive over the next two quarters. However, market sentiment was subsequently knocked by a below-expectations set of results from Saudi Basic Industries Corporation (SABIC)-the largest company on the bourse by market capitalisation-and then by the unrest that has affected Tunisia, Egypt and elsewhere. The accompanying uncertainty that surrounded the events in North Africa drove a 6.4% decline in the index on January 29th alone (although it recovered much of these losses the following week).