Saudi stock market surged 5% in a single day, foreign investment restrictions may be loosened

The Saudi Arabian stock market soared on Wednesday, as the market anticipated that the country would relax strict foreign investor ownership restrictions. This move is expected to unlock 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 capital to hold a majority stake in listed companies could take effect by the end of this year. Boosted by this news, the Saudi Tadawul All Share Index surged by as much as 5% during trading, with a market capitalization increase of $123 billion.

All industry sectors recorded gains, with Saudi bank stocks setting a record for a single-day increase of 9%. Investment institutions such as JP Morgan and EFG Hermes predict that once the policy is implemented, the market could see a potential capital inflow of about $10 billion.

This potential policy adjustment injects a much-needed boost into the Saudi stock market, which has performed poorly this year. Previously, the benchmark index had fallen by more than 5% within the year. Easing foreign investment restrictions is seen as a key step by Saudi Crown Prince Mohammed bin Salman to diversify the economy and reduce reliance on oil, aiming to deepen the local capital market and align it with Gulf neighbors like the UAE.

Investment Banks Predict Trillions in Capital Inflows

JP Morgan predicts that if the Saudi Capital Market Authority raises the foreign ownership limit to 100%, it could bring in a net capital inflow of $10.6 billion. Investment bank EFG Hermes also expects this move to 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 official new ownership limit has not yet been clarified, any change exceeding 50% would be milestone, as it would allow foreign investors to hold controlling stakes in listed companies in Saudi Arabia for the first time.

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

Currently, foreign ownership in the free-floating shares of Saudi National Bank exceeds 17%, Al Rajhi Bank is below 15%, and Alinma Bank is below 10%, indicating significant potential for future capital inflows.

Index Weight Expected to Increase, Some Companies Near Foreign Ownership Limits

Lifting the shareholding restrictions will also directly increase the weight of Saudi stocks in global benchmark indices. Gupta wrote in a report that this move could raise Saudi Arabia's weight in the MSCI Emerging Markets Index from the current approximately 3.3% to around 4%. The increase in weight means that passive funds tracking this index will need to correspondingly increase their allocation to Saudi stocks, bringing in stable incremental funds.

Currently, some listed companies in Saudi Arabia have attracted a large number of foreign investors, with their foreign shareholding ratios approaching the existing limits. According to data, the foreign shareholding ratios of insurance company Tawuniya, technology company Rasan, and telecom operator Etihad Etisalat have all exceeded 20%, but are below 25%. For these companies, relaxing shareholding restrictions will open up new possibilities for their stock prices and future development.

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