Saudi stocks surge most in five years on foreign ownership reform plans

Capital Markets Authority reportedly planning to ease 49 per cent cap for foreign investors

Saudi Arabia's stock market surged by 5.1 per cent on Wednesday, recording its biggest gain in more than five years after reports the kingdom is planning to ease foreign ownership limits for listed companies.

The Tadawul All-Share Index, the Arab world's largest bourse, reached 11,426.5 points, with more than 598.3 million shares traded at a total value of nearly 14.5 billion Saudi riyals ($3.86 billion), about 195 per cent above the 90-day average, EFG Hermes said.

Al Rajhi Bank traded the most, with its stock price surging 10 per cent – the exchange's daily limit. Saudi National Bank also rose by 10 per cent. Overall, banks recorded the biggest daily gains, at about 9.2 per cent, EFG Hermes said.

The gains followed reports that Saudi Arabia’s Capital Market Authority (CMA) is preparing to allow foreign investors to own majority stakes in listed companies.

The reform would eliminate the current 49 per cent cap that exists for foreign investors and could come into effect before the end of the year, Bloomberg reported on Tuesday.

"An increase in the share of allowable foreign ownership would increase the attractiveness of listed equities in Saudi Arabia to more passive investors and increase its share in global benchmark indices," Edward Bell, acting group head of research and chief economist at Emirates NBD, said in a note on Wednesday.

The potential move comes as Saudi Arabia seeks to revive its $2.23 trillion equity market.

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The market has underperformed this year, with the main index down 9.6 per cent (as of Tuesday) against a 25 per cent gain in MSCI’s broader emerging market benchmark, Soojin Kim, research analyst at Japanese bank MUFG, said in a note on Wednesday.

"Officials see expanded foreign participation as critical for funding Vision 2030’s economic diversification agenda, especially amid persistent budget deficits from weaker oil revenues and high state spending," she said.

"The reform is expected to draw additional liquidity, improve valuations, and raise the visibility of Saudi corporates internationally."

Saudi Arabia launched its Vision 2030 programme in 2016 to diversify its economy from oil and support private-sector growth.

Development of the kingdom's financial markets is a central plank of the kingdom's economic overhaul and the CMA has been consistently updating regulations to make the capital markets more attractive to investors.

In July, the CMA said it would allow residents of Gulf countries to invest directly in the kingdom’s Tadawul market, in a move aimed at boosting the market's international reach.

The approved amendments also allow individual foreign investors who previously resided in Saudi Arabia or other countries Gulf countries to continue investing in listed equities on Tadawul even after their residency expires, the authority said.

Previously, Saudi investment by Gulf residents was limited to the debt market, the parallel market Nomu, investment funds and the derivatives market.