Saudi stock market surges 5% in one day; restrictions on foreign ownership may be relaxed.

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The Saudi Arabian stock market soared on Wednesday as the market anticipated that the country would relax strict restrictions on foreign investors’ shareholdings. This move is expected to unlock tens of billions of dollars in new investments for the Saudi market and significantly enhance its position in global capital markets.

According to reports, a board member of the Saudi Capital Market Authority (CMA) revealed that a policy allowing foreign investors to hold a majority stake in listed companies could take effect before the end of this year. Boosted by this news, the Tadawul All Share Index jumped by as much as 5% intraday, and market capitalization surged by $123 billion.

All industry sectors recorded gains, with Saudi bank stocks setting a record single-day jump of 9%. Investment institutions including JP Morgan and EFG Hermes forecast that if the policy is implemented, the market could see about $10 billion in potential capital inflows.

This potential policy adjustment injects a much-needed shot in the arm into the Saudi stock market, which has underperformed so far this year. Previously, the benchmark index had fallen more than 5% this year. Easing foreign ownership restrictions is seen as a key step in Crown Prince Mohammed bin Salman’s drive to diversify the economy and reduce reliance on oil, aimed at deepening the local capital market and aligning it with Gulf neighbors such as the UAE.

Investment banks predict capital inflow in the tens of billions

JP Morgan predicts that if the CMA lifts the foreign shareholding cap to 100%, it could bring a net capital inflow of $10.6 billion. Investment bank EFG Hermes also estimates that this move would attract about $10 billion in funds.

Currently, Saudi regulations stipulate that a single foreign investor cannot hold more than 49% of a listed company. Although the new cap has not been officially clarified, any change above 50% would be a milestone since it would allow, for the first time, foreign investors to have controlling stakes in Saudi-listed companies.

Analysts believe that the financial sector, especially bank stocks, will be the biggest beneficiaries of the policy relaxation. Following the news, shares of Al Rajhi Bank surged by 10%. Both JP Morgan and EFG Hermes expect the bank to attract about $5 to $6 billion in funds. JP Morgan analyst Pankaj Gupta pointed out that Saudi National Bank and Alinma Bank will also be major beneficiaries.

Looking at current foreign holdings, foreign investors account for more than 17% of free-float shares in Saudi National Bank, less than 15% in Al Rajhi Bank, and less than 10% in Alinma Bank, indicating huge room for future capital inflow.

Index weighting may increase, some companies are near the foreign ownership cap

Relaxing shareholding restrictions will also directly increase the weight of Saudi stocks in global benchmark indices. In a report, Gupta wrote that this move could raise Saudi Arabia’s weighting in the MSCI Emerging Markets Index from the current 3.3% to about 4%. The increased weighting means passive funds tracking the index will need to increase their allocation to Saudi stocks accordingly, bringing a steady influx of incremental capital.

Currently, some Saudi listed companies have already attracted substantial foreign investors, with foreign ownership approaching the current cap. According to data, the total foreign shareholding is already over 20% but below 25% in companies such as insurance firm Tawuniya, tech company Rasan, and telecom operator Etihad Etisalat. For these companies, relaxing the foreign ownership cap would open up new prospects for share prices and future development.

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