Saudi set to free stocks from local grip as foreign-ownership cap nears relaxation, fueling major equity push

Saudi Arabia is on the cusp of a landmark shift in its equity landscape, moving to allow foreign investors to own a majority stake in local listed companies. The Capital Market Authority is nearing a policy change that would raise or potentially remove the cap on foreign ownership, currently set at 49%. This development is designed to reboot a market that has struggled to gain momentum amid regional tensions, shifting oil dynamics, and changes to public works spending. A senior regulator suggests the reform is “almost there” and could materialize before year-end, signaling a major pivot in how foreign capital interacts with Saudi equities. The potential move carries significant implications for index composition, capital inflows, and the broader trajectory of Saudi Arabia’s financial markets as part of its broader Vision 2030 reforms.

Regulatory Move Could Reshape Foreign Ownership in Saudi Listed Companies

The regulator’s near-term policy stance centers on relaxing, or perhaps lifting, the foreign ownership ceiling for publicly traded Saudi companies. Abdulaziz Abdulmohsen Bin Hassan, a member of the five-person board that governs the Capital Market Authority, indicated in a recent interview that the framework is very close to being finalized. He emphasized that the measure could take effect before the end of the year, subject to the necessary approvals from other government stakeholders. While Bin Hassan did not provide a precise target for the maximum foreign stake, he underscored that the regulator is prepared to advance the change, signaling readiness to push ahead with the reform despite the need for broader political concurrence.

A crucial aspect of the policy’s potential impact lies in its interaction with international index providers, particularly MSCI Inc. If foreign ownership thresholds rise substantially beyond current levels, the weight of Saudi-listed firms in MSCI’s benchmarks could change dramatically. The MSCI framework uses foreign ownership constraints to determine the effective market weights of constituent companies, and any substantial easing could lead to a higher overall representation for Saudi equities in global index allocations. This is especially consequential because many passive investment strategies track these indices, and changes in weights can prompt large, scale-up inflows from funds that benchmark to MSCI’s indices.

The prospect of a higher foreign ownership ceiling also carries strategic implications for the government’s broader economic program. While approval from additional government bodies remains a prerequisite, the regulator’s stance points to an intent to move forward. The absence of a specified final ownership ceiling underscores the policy’s transitional nature, with negotiators likely balancing foreign access against domestic market stability and capital formation objectives. The decision to relax could thus set in motion a rapid re-pricing of risk premia and alter the dynamics of corporate governance, investor relations, and capital planning for listed firms.

In terms of immediate market structure, the move could enable Saudi companies to attract not only passive funds that track MSCI weights but also active investors seeking greater exposure to a market that has shown both resilience and volatility. The shift would potentially reduce friction for cross-border capital flows, align the country’s equity regime more closely with international standards, and elevate the attractiveness of Saudi stocks as core holdings in diversified global portfolios. Nevertheless, the policy unfolds within a broader regulatory and geopolitical context, and the ultimate impact will depend on the precise mechanics of the reform, including any transitional rules, sector-specific allowances, or other guardrails designed to preserve orderly market functioning.

The current environment features a mix of cautious optimism and prudent skepticism among market participants. While the board member’s remarks suggest momentum toward reform, observers note that any deviation from established precedent—particularly around ownership concentration—must be navigated with care. There is recognition that relaxing foreign ownership limits could lead to elevated capital inflows and higher participation from institutions accustomed to operating within stricter regimes. Yet there is also an awareness that abrupt changes could introduce volatility if not accompanied by supportive policies, such as enhanced corporate governance standards, transparent disclosure practices, and robust market surveillance.

Market Context and Investment Flows

Saudi Arabia’s equity market has endured a period of underperformance relative to regional peers, undermined by geopolitical tensions, commodity price volatility, and shifts in public expenditure programs. The primary stock index has posted a negative trajectory for the year, reflecting broader regional uncertainty and the complexities of aligning a rapidly modernizing economy with global capital markets. In contrast, broad emerging-market benchmarks, including MSCI’s, have generally tracked higher valuations, highlighting a divergence that policymakers are eager to close through structural reforms, improved access for foreign investors, and a more open capital account in listed equities.

A central driver behind the push to raise foreign ownership limits is the anticipated reweighting of Saudi firms in the MSCI Emerging Markets Index. Presently, companies listed on Saudi Arabia’s flagship exchange account for a modest share of the MSCI EM index. By enabling larger foreign stakes, Riyadh hopes to unlock a broader base of strategic and passive investment, as fund managers respond to index-driven allocations and the perception of a more globally integrated market. The logic is that a higher cap would translate into more consistent, long-duration capital from investors who seek exposure to Saudi assets as part of diversified, benchmarked portfolios.

Market participants also point to the broader macroeconomic backdrop in which Saudi Arabia pursues an expansive Vision 2030 reform program. The convergence of ambitious public investment, diversification away from oil dependency, and a need to sustain fiscal stability in the face of varied revenue streams creates both headwinds and opportunities for the equity market. A more liberal foreign-ownership regime could be a catalyst for shifting the investment mix toward equities, while simultaneously encouraging domestic firms to pursue governance and efficiency improvements to remain competitive in a global context.

The indicator for external appetite remains the alignment of Saudi equities with international standards of market access, transparency, and regulatory predictability. As foreign participation grows, there is heightened attention on how listed companies manage corporate governance, earnings quality, and liquidity. The potential increase in foreign participation could also incentivize enhanced market-making activity, broader investor education efforts, and the development of more sophisticated financial products that support deeper liquidity and more robust price discovery.

Saudi companies already display varied levels of foreign ownership. Notably, several firms have foreign ownership shares that exceed 20% but stay below 25%. Among the largest where foreign investors hold meaningful positions are Tawuniya (the insurance provider), Rasan (a technology firm), and Etihad Etisalat (a telecom operator). This pattern of ownership suggests a precedent for foreign participation that could be magnified if the cap is raised, potentially reshaping the investor base and the strategic orientation of these companies as they pursue growth strategies and capital deployment plans.

The market’s sensitivity to policy signals means that even incremental steps toward liberalization can have outsized effects on investor sentiment. Those monitoring the reform expect that a decision to ease ownership constraints would signal government confidence in domestic capital markets and in the underlying profitability and resilience of Saudi listed companies. Such signals can inspire a broader reassessment of risk premia, cost of capital, and the relative attractiveness of Saudi equities versus other regional and global opportunities.

Despite the perceived upside, there are caveats. A more permissive foreign ownership regime could concentrate ownership in a smaller group of international players, potentially impacting corporate governance dynamics and minority protections if not carefully designed. Additionally, authorities must weigh the risk of sudden capital inflows against the need for market stability, ensuring that liquidity remains robust and that price discovery reflects the fundamentals of companies in the Saudi market. The balance between openness and prudence will be a defining feature of the policy’s eventual architecture.

Expert Opinions, Market Dynamics, and Potential Winners

Market analysts and investment professionals have been actively weighing the potential consequences of loosening foreign ownership limits. Fadi Arbid, the founding partner and chief investment officer at Amwal Capital Partners, has publically expressed a view that relaxing ownership caps would lift the MSCI weight for Saudi equities. The implication is that a higher index weight would attract more capital from passive strategies and from fund managers who optimize portfolios based on benchmark exposures. The prospect of increased passive inflows can be a powerful driver of liquidity and can contribute to price discovery by aligning valuations more closely with global demand for exposure to Saudi market access.

Arbid emphasizes that such a reform would not only alter the composition of the MSCI EM index but also encourage active investors to deliberate whether they should expand their exposure to Saudi-listed companies. The dynamic is twofold: passive investment would receive a direct boost through reweighting, while active investment would be spurred by improved liquidity, greater visibility in international markets, and the prospect of higher returns associated with a larger and more liquid market. This dual-channel impact could transform the Saudi stock market by attracting a broader and deeper investor base, including long-term strategic investors who seek stable, high-quality assets within rapidly reforming economies.

The push comes at a time when foreign investors have already shown growing interest in Saudi equities, drawn by ongoing reforms and valuation attractiveness. Foreign funds are increasingly allocating capital to the Saudi market as part of diversification across emerging markets and as part of a broader strategy to participate in the region’s economic transformation. This trend aligns with the country’s Vision 2030 ambitions, which aim to diversify the economy, attract international investment, and create a more favorable environment for business and financial activity. The improved investment climate is complemented by a range of regulatory reforms aimed at enhancing transparency, governance, and market integrity.

From a macro perspective, the reforms are seen as a lever to help Saudi Arabia address fiscal pressures and funding needs. The country has sought to balance high domestic spending and investment programs with the realities of oil revenue, particularly in periods of price volatility. Increasing foreign participation in the equity market could help diversify funding channels, reduce the reliance on domestic debt issuance, and provide investors with greater confidence that the market can absorb larger cross-border flows in a controlled and orderly manner. The governing philosophy behind this policy appears to be aligning with global best practices in equity markets, enhancing capital formation, and strengthening the link between the Saudi economy and international financial ecosystems.

In terms of potential beneficiaries, multiple segments of the Saudi market could stand to gain from a liberalized foreign ownership regime. Large-cap financials and telecommunications firms, as well as diversified conglomerates, often attract substantial foreign participation due to liquidity, growth prospects, and governance standards. The specific list of top foreign-owned companies may grow as the policy takes effect, and investors will likely monitor corporate governance measures, earnings consistency, and dividend policies as signals of resilience and long-term value creation. While the precise rules surrounding the ownership cap remain to be finalized, market observers anticipate that firms with robust earnings profiles, transparent disclosure, and scalable growth opportunities stand to benefit the most from a deeper, more globally integrated investor base.

The policy era is also likely to accelerate the modernization of financial markets in Saudi Arabia. If foreign ownership restrictions are eased, there could be an acceleration in related reforms, including the enhancement of market infrastructure, the introduction of more sophisticated financial instruments, and broader educational initiatives to equip domestic investors with the tools to participate effectively in a larger, more dynamic market. The combination of higher foreign participation and improved market architecture would create a more resilient equity market capable of absorbing fluctuations in global capital markets while delivering sustainable growth for the country’s economy.

Background on Market Performance, Reform Momentum, and Sector Implications

The Saudi stock market has faced headwinds in recent months, with underperformance attributed to geopolitical tensions, changes to oil revenue expectations, and revisions to public works programs. The main Saudi index has tracked lower this year, signaling a continued challenge in achieving sustained gains amid a complex regional and global landscape. In contrast, MSCI’s emerging markets benchmark has posted positive performance, underscoring the relative strength of broader market dynamics and the potential for Saudi equities to catch up once structural reforms take hold. The gap between Saudi performance and broader MSCI EM gains serves as a motivator for policymakers and market participants alike, highlighting the potential for policy-driven catch-up growth through reforms that expand foreign participation and enhance market efficiency.

Foreign investors have increasingly allocated resources to Saudi equities, reflecting a belief in the country’s economic trajectory and the transformative reforms underway. The combination of market reforms, a supportive fiscal and monetary environment, and valuation attractiveness has drawn interest from international funds seeking exposure to the region’s growth story. The ongoing reform agenda, including measures to relax foreign ownership limits, is viewed as a key factor that could unlock a more significant portion of the market’s upside potential. As investor sentiment evolves, the market’s ability to translate policy changes into durable liquidity and price discovery will be a critical test of the reform’s success.

In the broader context of Vision 2030, the push to liberalize foreign ownership fits into a comprehensive plan to diversify the economy, attract international capital, and reduce reliance on oil revenues. The reforms aim to create a more mature, sophisticated, and globally integrated financial market that can support sustained economic growth. The anticipated capital inflows from increased foreign participation would be expected to support the execution of large-scale public investment programs, spur private sector development, and encourage innovations in financial services. The net effect could be a more robust and diversified equity market capable of sustaining long-term value creation for both domestic and international investors.

Additionally, the policy’s potential implications reach beyond immediate investment flows. A higher foreign owner base could influence governance standards, corporate strategy, and the allocation of capital within Saudi companies. Firms may respond to greater scrutiny by investors through enhanced disclosure, stronger shareholder rights, and more transparent performance metrics. These changes would be consistent with global best practices and could contribute to a more competitive and resilient market over time. The interplay between policy, governance, and market performance will shape how quickly and effectively the reform translates into tangible benefits for investors and the economy alike.

Potential Risks, Safeguards, and Monitoring

While the prospects of higher foreign participation are compelling, policymakers and market participants acknowledge the importance of safeguards to maintain market stability. A careful design of the regulatory framework would need to address concerns about concentration risk, liquidity management, and potential volatility associated with sudden shifts in ownership structure. Transitional arrangements, phased implementation, and clear guidelines governing investor protections could help mitigate such risks while enabling the market to adapt to a new regime of foreign access.

Market operators would likely emphasize the importance of robust liquidity facilities, effective market-making programs, and enhanced surveillance to detect and respond to abnormal trading patterns that could accompany a policy shift. The mutual responsibilities of the regulator, listed companies, and foreign investors would be essential to maintaining orderly markets during the transition. Transparent communication, predictable rulemaking, and consistent application of policies would further contribute to investor confidence and the smooth integration of higher foreign participation into the Saudi equity ecosystem.

From a macro perspective, the reform would need to be integrated with other structural initiatives designed to bolster the financial system. Initiatives such as governance reforms, improved corporate transparency, and the expansion of financial products could complement the ownership policy by expanding the toolkit available to investors and regulators. The objective would be to create a more resilient market that is capable of sustaining higher capital inflows while maintaining protections for minority shareholders and ensuring fair pricing and liquidity.

The ultimate outcomes hinge on the precise policy design and the speed with which stakeholders reach consensus. If implemented thoughtfully, the policy could deliver meaningful gains in market depth, efficiency, and international participation, contributing to a healthier long-term trajectory for Saudi equities. However, a rushed or poorly calibrated approach could provoke volatility and undermine confidence, underscoring the need for careful planning and gradual execution aligned with broader economic reforms.

Conclusion

As Saudi Arabia advances toward relaxing foreign ownership limits in its listed companies, the potential implications span from index reweights to multi-faceted investment flows. The move, led by the Capital Market Authority with the endorsement of key government stakeholders, signals a willingness to deepen integration with global capital markets and to leverage index-based demand to catalyze foreign participation. The prospect of higher weights in MSCI benchmarks could usher in a broad spectrum of investment, from passive funds seeking benchmark exposure to active managers pursuing strategic opportunities in a market undergoing fundamental reform.

The anticipated policy shift also reflects a broader economic strategy under Vision 2030, emphasizing diversification, governance improvements, and the modernization of financial markets. While substantial questions remain—about the final ownership ceiling, transitional rules, and governance safeguards—the direction is clear: Saudi Arabia is pursuing deeper capital markets integration through structural liberalization, with the goal of strengthening liquidity, attracting capital, and supporting sustainable growth. As reforms unfold, investors will watch closely how the market absorbs greater foreign participation, how listed companies adapt to enhanced governance expectations, and how these changes translate into long-term value for domestic and international stakeholders.