Saudi stocks jump most since 2020 on plan to relax foreign curbs

Investors are betting on a flood of investment to the Gulf nation if it eases rules that now cap foreign ownership of listed companies at 49%.

Saudi Arabia’s stock market surged — adding $124 billion to its market capitalization — after Bloomberg reported that the kingdom may soon ease foreign ownership limits for listed companies.

The Tadawul All Share Index jumped 5.1% on Wednesday, the most in more than five years, after a board member of the Capital Market Authority said majority foreign ownership could come into effect by the end of the year.

Saudi bank stocks surged by a record 9.2% while JPMorgan Chase & Co., EFG Hermes and Franklin Templeton predicted billions in potential inflows to the market, which has missed this year’s emerging-market rally due to a drop in oil prices.

Investors are betting on a flood of investment to the Gulf nation if it eases rules that now cap foreign ownership of listed companies at 49%. The move would fit with Crown Prince Mohammed bin Salman’s efforts to deepen the local capital market and align it with its Gulf peers. The UAE, for example, said in 2019 it will allow foreigners to own 100% of businesses across industries.

“What makes it so powerful is the scale of the impact: a full removal could unlock over $10 billion in passive inflows, drive a major MSCI and FTSE reweighting and lift Saudi’s EM index weight by nearly 100 basis points,” said Salah Shamma, Franklin Templeton’s head of equity investment for the Middle East and North Africa.

While it’s a welcome step that can trigger a strong technical rally, the sustainability of Saudi Arabia’s stock market performance will rest on market fundamentals and the broader economic outlook, he added. Saudi stocks have suffered amid concerns around geopolitical tensions, low oil prices and the effects of spending curbs on economic growth.

A decision by the CMA to allow majority foreign ownership isn’t a foregone conclusion and it’s unclear how big a stake foreigners could eventually be able to own in Saudi equities if approval goes ahead.

But any move above 50% would be significant as it would allow investors from abroad to hold a majority of share capital in publicly listed companies for the first time.

The potential decision has given Saudi stocks a much needed boost: the benchmark index is among the worst performers globally this year, falling over 5% while the MSCI All Country World index has climbed almost 17%. Local investors have been a big part of selloff, while foreigners have used the slump — and its drag on valuations — as an opportunity to become more active in the market.

JPMorgan sees a potential capital influx of $10.6 billion should the CMA lift the ownership limit on stocks to 100%. EFG Hermes also anticipates about $10 billion of inflows.

Shares of Al Rajhi Bank surged 10%. Both JPMorgan and EFG expect it to be the biggest beneficiary of the possible change, attracting around $5 billion to $6 billion. Saudi National Bank and Alinma Bank would be the other key winners, JPMorgan analyst Pankaj Gupta said.

Lifting the restrictions also stands to boost the weight of Saudi equities in MSCI Inc. benchmarks. The kingdom’s weight in the MSCI Emerging Markets Index, for example, may increase to about 4%, JPMorgan’s Gupta wrote in a report. That compares with about 3.3% currently.

Saudi firms with the largest total percentage of shares owned by investors abroad prior to today’s trading include insurance provider Tawuniya, tech firm Rasan and telecom operator Etihad Etisalat. All stood above 20%, but below 25%.

Saudi National Bank has more than 17% of its total free float of shares out to foreigners, while Al Rajhi has under 15%. Alinma has below 10%.