Settlement cycle and it has also become the first in the region to permit short selling. We spoke to the c. E. O. Of the middle east biggest equity market. What i would like to see is the growing number day after day and year after year. We have an ownership limit of 49 and wed love to see a few achieve that level. The other big theme has been ipos and were hearing whispers of more Family Companies considering ipos as well. How many ipos are you looking forward to in 2017 to bring liquidity into this market . Well, today after launching the Second Market were looking at ipos from two different sides, offering two platforms for listing. He main market and nmo has been very active as expected. It has been granted approval 20 we can say that at least Saudi Companies have fired their Financial Advisers. We see a very healthy ipo pipeline on the market. Out of those 20 are there more Family Offices considering ultimately the thinking was it has encouraged more of the private companies to come forward, right . If you look at the list today, yes youll see some of them are Family Businesses and im sure that as part of these houses, es, family small, medium enterprises. Well see. I am very optimistic about the pipeline and im very optimistic also about this. So is it main market and . No, the 20 that have. Okay. On the main market youre looking forward to . We continue toward with the Financial Advisers to encourage more listings on the main market, going to alternative markets or lower listing departments and of course to go public. It is a platform that gives people comfort before they join a more stringent and firm market. Last year we had three and well have at least that number this year for main market. Short selling so far since you introduced it around april 23, when is activity going to pick up . How do you . Well, basically it just happened last week and if we take it will take time for authorized persons, brokers, to package the services for their clients and start to get the demand growing and flowing for the market. Basically a is Bilateral Agreement between the lendor and borrower and they would start the way they would see a profit. In terms of the widening of the appeal of the saudi stock market, increasing its depth, options and futures, you set this on the table, possibly in the next 24 months, give me a little bit more accurate timeline . Pin it down for me. When and what needs to happen for you to be able to deliver on that . The main thing is setting up the Clearing House in saudi arabia, which can clear derivatives which will happen this year. Technology and regulatory, all of these streams are on the way. To enable the saudi Clearing House to clear derivatives. So were moving forward with all of this to set up the derivatives market. Would this happen after the emerging market inclusion or before . It depends on the decision and what will happen. Okay. Closing question on cross listings, nonSaudi Companies. Are you making any progress there, any interest . There is fantastic interest, istanbul we have been speaking to Many Companies and all over to attract them to join. Hopefully well get something to happen this year. This year. Okay. How many . We dont know. Rnings ipo 2018 . Still have a deal here . Were still on track. Still in the plan. Coming up saudi arabias market regulator says it is just a matter of time before foreign money starts piling in. Catch our discussion with the Capital Market authority next. This is bloomberg. Youre watching the best of Bloomberg Markets middle east. Now the regulator of the Saudi Arabian board says it expects to see a rise in Foreign Investors after bringing its markets more in line with international standards. We spoke to the vice chairman of the kingdom Capital Market authority. The entire vision of 2030 is based upon diversifying the economy away from oil. When you want to diversify you really want to base this on areas of competitive advantage that you have and when you scan the environment in saudi the Capital Market quickly jumps out at you as a strong area of competitive advantage. The 23rd largest Capital Market in the world. We are even higher ranked in terms of liquidity. It is not an unfair feat to say we want to see the saudi Capital Market become the defacto, the main Capital Market of the region and one of the most important in the world. Yes. The thing we need to track this down are really to open it up on the two sides of the equation. On the one hand open it up to Foreign Investors and on the other hand to open it up to Foreign Companies that want to list on the exchange. And so youve done a lot already. And the latest has been the rollout. How is that working out . More importantly for our viewers around the world what is next in the pipeline in terms of reform . So you really are touching on the first part of deregulating and liberalizing the market which is opening it up to Foreign Investors. That started with the q 5 framework which is really just giving investors the legal ability to buy. We quickly then in 2016 revised the framework based on feedback to make it a little more accommodating. Then we moved to the structural issues and the main structural comments that we received from the Market Participants is that in order for them to truly look at saudi arabia we need to run the same settlement convention as most countries theyre familiar with. Saudi runs on sequence zero settlement cycle. That has been as of last week we started fully migrating into t plus two trading, started the beginning of last week with no hitches or incidents to speak of. So we now can declare some degree of victory hopefully with respect to the transition and move on to the other elements of reform in the Capital Markets. How many do you have at the moment . Are they enough for the reviews . So that is a very good question. 60 but we have around the more important thing than the number is to actually look at the rate of increase. So weve had an over 50 increase in the number in the past few months, which is largely a reflection we view as a reflection of the interest in saudi as we opened up the market. We expect that the pace of registration will increase even further as weve now just transitioned and thats the feedback weve been receiving both from International Investors and custodians. In terms of the target date for the potential emerging market are you still confident youll be able to meet that date or date you will be included on that date . So with respect to the inclusion date i think the best thing to do is quote from our colleagues at nmci and what theyve said in their preferred timeline or the timeline theyre envisioning is to add saudi arabia to the watch list in the middle of this year. The watch list process is usually about a years process. After that watch list is completed then a decision is made. Once the decision is made then there is a period for full implementation to allow Global Asset Managers to adjust their portfolio. We think it is going to be within that time frame. Give me a sense here in terms of the timeline, the time frame, you made a few changes and with the short selling, possibly options and futures. What else is on the agenda as you try to open up this market and really make it attractive to people willing to put money to work from outside saudi borders . So it is very important to know both our position and our role as a regulator. The role of a regulator is to ensure that the market is efficient for attracting capital, efficient for deploying capital, and that the transaction happens in a manner that is transparent and has a high degree of governance. Innovating products with respect to new products we believe should be left to Market Participants in the exchange. We believe there is a lot more in store. We just started with the rollout of t plus 2. A by product was the launch of security lending and short selling. We are still monitoring the market to see the level of interest and activity in that. We expect it will be sizable. As that matures, we would expect that both the exchange and different Market Participants will start innovating new products, whether they are options, futures, or any other products they think are appropriate. In terms of reform, the draft of takeover rules, how much of a game changer do you want that to be . A step hope that it is change in terms of reception of the market because what the c. M. A. Has received and the c. M. A. Has often gets feedback and solicits feedback from Market Participants, some of the feedback we have received is that the current set of regulations may hinder activity particularly if you are a publicly traded firm. So the c. M. A. Went back to the drawing board and revised the regulations. We just recently launched them or released them for Public Consultation and we are now actively soliciting feedback for Market Participants so we can make any additional changes before we release them in their final version. Heres the thing. I look at the data in terms of Foreign Ownership of saudi stock and when do you expect a spark to happen . Is it oil at 50 keeping sentiment at bay . What is going to be the thing that really opens things up . So id like to answer that with two quick points. When most people look at foreign investor rates and foreign investor percentages they may not see a significant increase but that number actually is a, maybe a misleading number, because the vast majority of that number are Strategic Investors that have existed in the publicly traded firms even before listing, in some cases generations ago. Those have existed in a different regulatory framework. The number were looking at is the Financial Investors that are actually coming in and tapping the market. That number has been steadily increasing over time. We expect that with the transition of the market from t plus 0 to t plus 2 that would increase the appetite for potential International Investors but, naturally, it is a question of the macro environment and how they like to position saudi as part of their Global Portfolio. Just ahead on the best of Bloomberg Markets middle east, saudi arabias biggest listed Real Estate Firm has big expansion plans. Hear from the c. E. O. , next. This is bloomberg. Snow this is the best of Bloomberg Markets middle east. Already the largest listed Real Estate Group in saudi arabia is planning to expand beyond the holy cities of mecca. We spoke to the c. E. O. Yesterday about where he is look tog grow and how he hopes to fund that expansion. There is much in mecca and medina. It supplies a lot of expertise. Those two cities have their own futures and character especially mecca with the seasonalityy factors so were ready to leverage on the experience and capabilities and his is our strength. It will start with more development within mecca. It is also the other businesses that complement the Business Model for Real Estate Development. Would you say it is on the table outside of those cities . The Foreign Investors want to take part in your growth story and they wouldnt be able to at the moment. Once you go outside of these two cities it might be an option. Yes, well absolutely. Mecca, medina, and the adjacent cities. Who knows . Might as well diversify within the province. But those are the four cities that we really invest heavily and leverage upon our expertise. So you could imagine Foreign Investment being part of your story in the next two, three years. Absolutely. Without any regulations or rules, yes. Hrough either investments to partnerships we give them access and financial benefits of jabal omar. How are you going to fund this expansion . Are you looking at loans . Bonds . What is on the table here . All are on the table. Definitely bonds is the theme now. When it comes to debt, other forms of debt, something were working on previously as in a previous interview with that were issuing. The least form of financing looking toward is sharing of risk and introducing new instruments. So those will be biggest in the region collectively. Are we going to see more of that, of you developing these kinds of funds and ultimately where is the additional cash going to come from . Is that going to be through selling of assets . Is that on the table as well . You talked through some the options. What about selling further assets and pushing more of that to elements, into creative diversification strategies . Absolutely. The development company, also lifestyle company. We sell units. We sell lifestyle. As they say you can have the cake and eat it. Were not the pension fund not just a pension fund that is developed and we sit on it. We develop, sell, create value, and move on to other Development Areas so that is substantial in our Financial Strategy and will pump in a lot of cash and liquidity to help us in achieving our strategy. What about in terms of developing the buying land . Thats on the table as well, isnt it . Well, i. How much land can you buy at this stage . Well, its slightly different. It is not buying land. It is participation and joining other investors through land, etcetera, and leveraging the Real Estate Development experience that we gained throughout a number of years especially in mecca. Closing question because we are here inary had and a lot of investors are watching the transformation story and everything around that. We saw a bit of a uturn and reversal on the restoration of bonuses in the last two weeks. Do you think this will be breathe new life into some of your projects as well in terms f the domestic demand . Absolutely. This in itself came at the right time. Ut that is a short term. The bonus story is not for long term. The long term is where we deliver the Proper Service and the Proper Service to various societies. This is where were really folk used on. Saudi arabias leader says some of the money raised by ipo will be spent on domestic investments. The crown prince also says the kingdom will retain full ownership of its oil and gas reserves and sole Decision Making authority on production levels after the national oil companys public share sale. Lets get more from ihs markets, the Vice President for energy. Thank you so much for talking to us this morning. Lets talk about this ipo of saudi aramco. Given what prince muhammad has just said about having a sole Decision Making authority on saudi aramco after the ipo, some key questions remain. How much transparency will there be on key operating metrics for saudi aramco to facilitate forecasting . That remains the key question for investors in this ipo and the ipo has gone to is going to evolve only 5 of aramco and as was said in interview, much of the control remains within aramcos management. The wells and reserves remain within the control of aramco. And investors will benefit from the management of those assets by aramco. Lets talk about the past forward for oil prices. Were gearing up with a big meeting from opec in terms of possibly extending the agreement. Before we get to the actual agreement i want to talk about the state of play, reality of supply and demand. We put this up on a chart showing u. S. Crude inventory in the United States and crossed it with the u. S. Gasoline inventories. You can see the inventories might have started to come down but the gasoline supplies have been coming up. So arguably what is happening here is it is all moving a little witness down stream. And, perhaps, that is not really an indication that this agreement is working. How much oil is out there really and how much an impact has this agreement really had . Oil inventories in oecd countries remain very high. Just in the u. S. Even though crude Oil Inventories may have inched down a little, crude Oil Inventories in the u. S. Remain at near record levels, much higher than the fiveyear average level. There is really no quick fix to the high Oil Inventories that we have globally. Ts going to take time for any output cuts to work through the inventories. Ce the problem that opec faces is every decision they make there is going to be a reaction. D the reaction from the opec Production Cut is growth in u. S. Oil supply. Weve seen u. S. Oil rigs about ago e since about a year so u. S. Production is on the rise and thats going to provide a counterbalancing force to the output cuts in opec. Next on the best of Bloomberg Markets middle east, jpmorgans c. E. O. For middle east, turkey, and africa gives us his outlook for the r yousef welcome back to best of Bloomberg Markets middle east. I am yousef gamal eldin. Saudi arabia wants foreign capital and has taken steps into one of the most conservative Financial Markets and this week marks two years since the decision to allow Money Managers to trade saudi shares directly. We spoke with jp morgan meta ceo sjoerd leenart. Ipos in excited about the broader region. There are quite a few drivers. We have the government agenda of trying to privatize companies and create a private sector. That is a key driver. And that will go over 2018 and 2019. And private companies, they will need to take advantage of an increase in investor demands coming in the next three years, driven by development and changes in the market, and the Stock Exchange and accessibility of the market. Yousef how big overall how big of a real are you playing . Gulliver confirmed that they have the aramco ipo, will you do the same . We do not talk about the deals until they are out in public, but we have been here for 80 years and we have helped key institutions for many years, so we expect to play a pivotal role not only in the mna, not sly the ipos, but the mna and financing. Shery jp morgan just doubled market shares in the middle east laughter, where do you expect bright spots to be this year . Debt hask, you know, been a big driver of opportunity for banks and that will continue. I think we will see a similar year to last year. We have already seen some key things such as the Saudi Arabian people wantbuoyant, to eke out efficient these in the system and with the market booming, it was not needed, but now they are looking for efficiencies and secondly, domestic investors are looking to expand and diversify internationally. And clearly there is growing interest in investing in the region and that will come down to mna. Shery we want to talk about mnas in the next few minutes, but lets talk about saudi arabia. There has been an announcement of privatizing government assets, do you expect more on that front, what about corporate earnings at of the economy . I think the privatization is crystallizing clearly and there are documents around, weve heard names mentioned, whether it is aramco, the grain silos. Also a lot of Infrastructure Projects will be up for privatization. That is very buoyant. With earnings, i think investors are looking. And there are international companies. And domestically the investors are looking for a baseline with respect to oil and Consumer Behavior and i think that is becoming clear and when that happens i think the earnings predict ability for some companies will become expanded. Yousef keeping a close eye on the bank rates, it is remarkable to see the recovery. We will put this up on the bloomberg. Look at how this compares. In terms of what it means for afternks, after research, research in the last few weeks and the amount of bullish sentiments towards the banks has been nothing short of remarkable. How much more momentum can we expect in that sector . The position of the banks have improved from last year and and as youdan can see, probably as much as 16 or 70 . They are doing an outstanding job on keeping them focused on the domestic market and very healthy. I think that is a sector that once the economy starts to grow again, speaking of the private sector, they will benefit from that. Yousef in terms of the net foreign inflows, that is not really where the authorities would like it to become even though they were hoping as of may 12 last year when they started making some of the changes, that that would stimulate. What will be the next catalyst, what is holding the investors back from putting money to work in the saudi stocks . I agree. It is out of sequence of what we would expect the 20th largest economy in the world. Im convinced it is going to happen. The catalyst will be the liberalization of the market in terms of accessibility of a and i think that the cma has made a lot of strides and they are getting there and that is why the msci inclusion is talked about. We do not have to wait for the inclusion to really see the foreign interest into the market. I think a lot of investors will be judged on other situations, the buying actually started well ahead of the actual inclusion. So i will be hoping that those two factors driving investment. Yousef Capital Market, there has been a lot of demand there. You expect 2017 to be better than 2016 and how many mandates have you secured so far . I think it is the easiest to do, the quickest to do, and for investors it is the easiest to buy. You want to get your money back at the end. Seenhat is why we have unbelievable demand, just with these two bonds. Which i have been in the market for 23 years and have nothing that sort of demand. So it shows the demand is there for the country. And i think they will continue to borrow come of as the deficits decline, the volume will compared it will be a big year. I mean, the catalyst for many of the bond sales was the crash and oil price. With it stabilizing around 50 a barrel, will we see the necessity waning for some of this . They should. I think most want to close the deficits. And in fact, for some of the countrys energy , they are not a big. I think with fiscal this garrity they will be able to close the gaps and i think therefore the need to borrow will actually diminish. Equally, you have a corporate sector that will replace the supply. Shery right. Mnas. Also talk about where will the bulk of business compromise comes to mna activity . Na isthink the need for ma broadbased. When the region was growing up 5 i think people were focused on taking advantage of the opportunity. Growthh oil at 50 and in the low 1 or 2 , people have to find different ways to grow and diversify. Mna is a way to get efficiency and also i think a number of Companies Need to sort of expand their footprints. I think we will see the outwork of mna, and inward. I think there was a good example of those investors wanting to take advantage internationally of what the region supplies. Rasmala coming up, Investment Bank tells us of other topics in the region. This is bloomberg. Yousef welcome back to best of Bloomberg Markets middle east. It was a big week for corporate results across the gulf. The head of equities for rasmala Investment Bank joined the show to give us a break down. Ali we do not think that the corporate earnings put together in the first quarter, and a lot of it came in my with expectations, particularly on the Retail Sector where the earnings where showing weakness. I do not want to say bottoming, but i think the most recent announcement of restoring the benefit or the cuts announced six months ago, is the fundamental change in that, for the Retail Sector. And it changes the view on some of the banks in saudi arabia with the retail books. I think our view during the cuts, that they were announced in october, took place in december and it will take time before you see the real impact of that. And the consequences. That is why we were not thinking, or that our view then is that they have not bottoms out. Yousef despite weak fundamentals, you are increasing exposure. To mitigate risk, what are you bullish about in light of the transformation story or the 80 transformation story . Ali exactly. Increasing the weight or exposure to saudi arabia started toward the end of the first quarter, early Second Quarter and ahead of the recent announcement, not that we were not seeing that company, but there was headline risk in the sense that saudi arabia is implementing or was going to implement a cycle toward the end of april. We were preparing for that, the news around the ipo and the saudi government making the announcement that they would be paying on time. The government tapping the debt market. There were a lot of headlines that would spur positive sentiment on the retail level and that is the headline risk that we saw it forced us to increase exposure. However, our picture was made more defensive for health care and banks we continue to like. Price optimism on the oil seems to be failing right now. How well the ipo of aramco play into the kingdoms efforts to support the oil price . Ali in my opinion the ipo of aramco is something that is huge for the economy, all eyes are on that. I think the progress of that will be important and people are watching it closely. The oil prices today, they are not helping, that is why you see the increased talk about extending the cuts to dry out the glut that is out there. The ipo is not in the next month or so, so we have time. I think saudi arabia and allies would put their weight behind supporting oil prices, increasing the oil prices, particularly in the best interest of saudi arabia because that is the biggest part of the valuation of aramco. Shery when it comes to businesses in saudi arabia, the cost of business seems to be increasing right now. What do you expect in terms of subsidies being kept by the government as well as the increasing taxes, how will that play into the business dynamic on the ground . Ali i think the cuts that were announced where basically very sensitive, that is really eating into peoples pockets and i think that is what people are sensitive to. Increasing the tariff zone on utilities and removing subsidies on utilities, gas, i think that does not impact everyone the same way. It impacts certain people, but not everybody. And you have mitigating factors to that. When your annual income takes a hit, there is nothing you can do about it. Restoring that is helping the boost sector, helping to the sentiment among retail investors. I think increasing taxes was evident, that it was going to come, and we just started that game and we should see more taxes in the future. Yousef this coming in from audio. Be bank from abu dhabi bank, the ceo expecting more mergers, saying that they are considering entering the saudi market. On some of those comments, when you look at the saudi market, the potential for mna in my of the Economic Transformation story, which ones the big contenders . Which once standout . Ali the Banking Sector could see consolidation. When you look at most of them in every country we have the top one or two banks, sizable in terms of balance sheets, but then you have the tier two and tier three banks where the market is a bit more fragmented, and i think you can see quite a bit of there is a case for consolidation among the tier two and tier three banks and i think something was announced along the lines of that, to see consolidation. Banks heren those and you could say more coming in the uae and across the region. Yousef where do you see the capital inflows going from here . Ultimately the saudi stock market has been trying to open up to Foreign Investors. When you look at demand for the saudi bonds, there has been appetite. It has outweighed supply. When you look at the stock story, it is a different story because it has been very slow to gain momentum. Is that going to change, what will be the catalyst . Is it the ipo of aramco . What will light it on fire . Ali the inclusion of saudi arabia into the em index is a game changer, not only for sau di, but it will change the landscape of the equity markets in the region. And i think the big change would be if you look at saudi arabia, whatever way it comes, you need to make a some shows on the ipo and so forth, but at about 2 and thatut 6 weight, is when you begin to see the region claiming a permanent allocation or permit part in a global or em portfolio as opposed to being a traitor. This region has always been relative to em, but now they will be part of it, a part were you cannot neglect it. Which is not the case now. Many people overlook uae and qatar under 2 , say you cant ignore that, but at 5 or 6 you can no longer ignore it. You could be at 7 or 8 if you are bullish. I think reclaiming a permanent part in a Global Portfolio is a game changer for the region. The gamble on up, European Airlines is proving costly for etihad. We look at how it could salvage investments in air berlin and what went wrong for alitalia. This is bloomberg. Yousef welcome back to best of Bloomberg Markets middle east. Etihad will stand by air berlin even after the reported soaring losses, even as european partner al italia went bankrupt. On top of the laptop and bans, making life tougher for those Companies Across the middle east. We spoke with Diogenis Papiomytis at frost and sullivan. Diogenis what has happened is they have made investments in airlines around the world, the two obvious ones air berlin and alitalia and they were not in the best situations operationally and financially when etihad made investments and things have not improved. Tracy one of the things that struck me from the drama last week with alitalia is when we had the Union Official come out and as part of his statement to reporters, he said that alitalia had failed. Why is there that sentiment in italy amongst the workers . Because etihad injected a lot of money into the company. Diogenis it did. It is the main reason all italian is still operating. I would say the main problem has changedt the management and a lot of the new management working now for them used to work for etihad, so it looks like Etihad Manning controlling the operation and a has been a negative sentiment in the company. Tracy are these Company Specific issues or does it Say Something broader about the strategy to build in europe . Diogenis my view personally is that equity investments, when you do not have full control of operations, are reasonable in the airline space. We have seen that before. In the case of etihad, it is what the airline can do when you have labor unions and very strong existing culture in a company like all italian. Ali talia. I said,nd science as we have been marking the 100 days of the Trump Presidency and that administration having an impact, how has that played out for you . Diogenis i think the main reason why donald trump is considered a president that is part of the Aviation Market is because of his unpredictable ism. Tracy there was speculation that the laptop ban was a backdoor measure aimed at attacking the gulf of model, do you share that view . Diogenis i do not believe that is the case. That is why many other countries have followed suit. I do not think the main reason has been the u. S. Open skies with the carriers. It has been about security. Tracy setting aside the bad, we did have travel extractions trevor resurgence that have affected gulf carriers and etihad has cut back on flights to the u. S. , right . Diogenis great. The problem right now is we do not have a common policy. You do not have joint operation in that and the widows companies actually represent themselves in the global space. Yousef that is all for this best of Bloomberg Markets, middle east. We will be here sunday at 8 00 a. M. On bloomberg television. I am yousef gamal eldin. Please join me then. Coming up on bloomberg best, the stories that shaped the week in business around the world. Meats but does not move. Brexit talks take a tougher tone. And President Trump tells bloomberg what is on his mind. Breaking up big banks. We have a sense of some sort of announcement in terms of the handling of wall street. To Money Managers speak extensively about their business. We are looking at money coming out of active management and toward passive structure. Give me a sense of what you learned . It can be expensive. And the milken conference