Saudi Arabian equities climbed after the kingdom opened up its stocks to all foreign investors, a step viewed as critical toward a full liberalization of the market as the Gulf nation looks to boost investment from abroad.
The Tadawul All Share Index jumped as much as 2.5% on Wednesday, the most since September, after the Saudi Capital Market Authority said it scrapped restrictions that stipulated foreigners must meet certain qualifications to participate in the local market. The removal allows non-residents to invest directly on the main exchange starting Feb. 1.
Financial firms including Saudi Tadawul Group, the owner of the stock exchange, and banks were among the day’s biggest gainers.
The CMA has said removing so-called Qualified Foreign Investor rules would be the first step to allowing investors from abroad to own a majority share of Saudi firms. Regulations currently limit foreign ownership to 49%.
“It stands to open the market to a wider group of investors, both retail and institutional,” said Salah Shamma, Franklin Templeton’s head of equity investment for the Middle East and North Africa, adding that the move had been expected by investors.
“It’s difficult to quantify the immediate impact of removal of QFI restrictions, but it’s a step in the right direction that should support the overall development of liquidity in the Saudi market,” he said.
Saudi Arabia’s need for foreign inflows has become more pronounced as subdued oil revenues and elevated spending on Crown Prince Mohammed bin Salman’s transformation plan translate into budget deficits that threaten to slow economic investments. Those factors helped drag Saudi equities to their worst annual performance since 2015 last year, with losses of nearly 13%.
Investors had raised concerns around a lack of fresh triggers to spark interest in the nation’s stocks, though have said a removal of foreign ownership limits could be a catalyst for an influx of foreign capital this year.
Scrapping Qualified Foreign Investor rules “is preparation for the removal of foreign ownership limits,” said Junaid Ansari, head of research and strategy at Kamco Investment Co. “It essentially makes Saudi Arabia a market accessible to all, including global small funds, regional and international family offices as well as international investors.”
JPMorgan Chase & Co., EFG Hermes and Franklin Templeton predict that the relaxation of foreign ownership limits would result in at least $10 billion of inflows, with banks including Al Rajhi Bank and Saudi National Bank the top beneficiaries. Shares in both banks jumped at least 3% on Wednesday.
With the latest move, focus now shifts to when and how much foreign ownership limits could be eased.
Bloomberg Intelligence Equity Strategist Andrew Martynov sees a likely change in the second half of the year that could drive fresh inflows to the Saudi market.
The CMA said late last year it hasn’t yet decided whether to eliminate the cap or lift it slowly but would undertake a review in 2026 to determine the best approach. It asserted at the time that Saudi Arabia was firmly on the path of fully opening its markets to foreigners. “This puts us closer,” Martynov said.
Lifting restrictions on foreign ownership also stands to boost the weight of Saudi equities in MSCI Inc. benchmarks. The kingdom’s $2.3 trillion equity market’s weight in the MSCI Emerging Markets Index currently stands at 2.9%.
“It’s not a matter of if, but a matter of when,” foreign ownership limits are removed, Franklin Templeton’s Shamma said, with a full removal potentially unlocking $8 to $10 billion of passive inflows.
“Eventually there’s a possibility that there will be less dominance of retail investors and a more prominent institutional investor base” in Saudi Arabia, Shamma said.
Compared to a few years ago, it’s a “different investment landscape.”
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