Saudi Arabia is preparing a major shift in its equity market policy by edging closer to allowing foreign investors to hold a majority stake in local listed companies. The Capital Market Authority (CMA) is nearing a loosening of the long-standing foreign ownership cap of 49%, according to Abdulaziz Abdulmohsen Bin Hassan, a member of the regulator’s five-person board. In a recent interview, Bin Hassan indicated that the reforms are “almost there” and could take effect before the year ends. This potential policy change represents one of the most significant steps in the kingdom’s ongoing effort to revive a stock market that has struggled to keep pace with regional peers and broader global capital flows. The move would mark a dramatic shift in the regulatory landscape for foreign investment, with far-reaching implications for market structure, liquidity, and price discovery in Saudi equities.
Policy shift: Scope, mechanics, and timeline
The imminent policy change centers on relaxing the cap that currently limits foreign ownership in listed Saudi companies to no more than 49%. If implemented, the adjustment would permit foreign investors to own a larger portion of Saudi equities, potentially exceeding half of the voting shares of domestic firms. The discussion around this threshold has already raised expectations within the investment community, as a more permissive regime would alter how stocks are valued and traded. The regulator’s leadership underscored that the reform would not occur in isolation; it would require alignment and approvals from other government stakeholders before it could become effective. While Bin Hassan did not provide explicit figures on how large foreign stakes might be permitted, the general thrust is a move away from the longstanding limit toward greater foreign participation.
In practical terms, the shift could change the dynamic of how Saudi stocks are incorporated into global benchmarks. A higher foreign ownership ceiling would influence how index providers treat Saudi companies, particularly in the context of major benchmarks that track broad markets and emerging markets categories. The prospect of a larger foreign footprint has the potential to reweight Saudi equities in prominent indices, thereby attracting more passive and active investment. As the rules stand, any increase in foreign ownership would interact with how index providers calculate national and regional weights, which in turn affects capital allocation across funds that track these indices. The regulator’s readiness to push ahead signals a clear intent to accelerate reforms, though the final shape of the policy remains contingent on broader governmental considerations. The timing remains uncertain, but the expectation set by the regulator points to a possible implementation before year-end, a timeline that would align with other reform efforts and market preparation activities.
From a governance perspective, the policy shift involves careful calibration. The CMA’s approach balances the desire to attract foreign capital with the need to maintain market stability, ensuring that any expansion of foreign ownership does not undermine corporate governance norms, market integrity, or systemic risk controls. The absence of a disclosed maximum permissible stake beyond the general principle of increased access suggests a measured approach that could start with a higher cap for certain sectors or categories of companies, followed by broader liberalization. The process also implies continued dialogue with industry participants, financial institutions, and investors to ensure that the new framework is operationally robust. The objective is to unlock the potential of Saudi equities by broadening ownership while safeguarding the mechanisms that support fair trading, effective price discovery, and transparent reporting.
As this reform unfolds, market participants are watching for the specific modalities of implementation, including the treatment of strategic investors, eligibility criteria for foreign buyers, and any transitional arrangements designed to mitigate abrupt changes in market behavior. The overarching aim is to position Saudi Arabia’s stock market more prominently within global capital markets, leveraging an enhanced foreign participation regime to improve liquidity, widen the investor base, and accelerate the integration of Saudi assets into international portfolios. The regulator’s openness to modification indicates a willingness to tailor policy details to achieve these strategic objectives while maintaining prudent oversight.
Implications for MSCI indexes and capital flows
A fundamental motive behind loosening foreign ownership limits is to influence the composition and weight of Saudi equities in major global benchmarks, particularly those compiled by MSCI. Under existing rules, MSCI applies foreign ownership caps when determining the free float and weighting of companies within its Emerging Markets Index and related frameworks. If Saudi equities are permitted to have higher foreign ownership, their free float would increase, and this could lead to a reweighting in MSCI indices. In practical terms, a higher permissible foreign stake could translate into a larger representation for Saudi companies in MSCI’s benchmarks, which would, in turn, attract additional capital from passive and active funds that track these indices. The potential upshot is a broader and more stable inflow of foreign capital, driven by index-tracking demand and the appetite of global investors seeking exposure to Saudi Arabia’s market reforms and growth prospects.
At present, Saudi-listed companies account for about 3.3% of the MSCI Emerging Markets Index. The prospect of relaxing ownership limits could meaningfully lift this weighting if the change leads to a larger free float and more liquid trading conditions. The design of the policy, including the specific cap or thresholds ultimately adopted and the sectors encompassed, will determine how quickly and to what extent MSCI-related dynamics unfold. If a decision to relax ownership limits translates into a marked increase in free float, MSCI’s index calculator would adjust the weights accordingly, which could prompt a rebalancing event across several funds and portfolios that adhere to MSCI-based methodologies. The timing of such adjustments would hinge on the formal adoption of the policy, the operational readiness of market participants, and the processes employed by MSCI to reclassify and reweight constituents.
For investors, the potential shift implies a re-exposure of Saudi equities to global capital with a stronger passive investment thrust. The policy change would likely encourage index-tracking funds and passively managed portfolios to increase their allocations to Saudi securities as the perceived liquidity and accessibility of the market improve. Active managers might also reassess their Saudi exposure, considering the improved ability of foreign participants to influence ownership and, by extension, corporate governance signals and strategic signaling from firms with more extensive foreign ownership. In this sense, the policy move is dual-purpose: it expands investor access and provides a structural mechanism to channel greater capital into Saudi equities, thereby supporting price discovery and market depth.
Nevertheless, the transition is not risk-free. Higher foreign participation can bring more volatility during periods of global risk sentiment shifts or shifts in oil prices, which historically drive Saudi macroeconomics and equity valuations. Market participants will be evaluating the resilience of local firms to foreign investor behavior changes, the effectiveness of corporate governance frameworks in an expanded foreign ownership environment, and the degree to which liquidity scales with the broader investor base. All these factors will shape how MSCI and other index providers respond to the policy and how quickly foreign capital flows translate into meaningful market outcomes. The interplay between regulatory changes, index methodology, and investor behavior will be a critical area of focus as the policy unfolds.
Market context: Performance, reforms, and investor appetite
The push to expand foreign ownership comes against a backdrop of mixed market performance and evolving investor sentiment. The Saudi main index has experienced a notable decline of about 9.6% this year, marking the worst performance within the regional landscape. This underperformance contrasts with the broader MSCI Emerging Markets Index, which has risen by roughly 25% in U.S. dollar terms over the same period. The divergence underscores a market that has lagged its regional peers and global benchmarks, even as reformative momentum and fiscal plans continue to unfold. The combination of geopolitical risk, shifts in oil price dynamics, and revisions to public works and spending programs has contributed to the negative price action in Saudi equities, prompting both domestic and international observers to reassess the market’s risk-reward profile.
Despite the recent headwinds, there is a growing narrative that foreign investors are increasingly allocating capital to Saudi equities, drawn by two key factors: the ongoing market reforms and the market’s relatively cheap valuation in some segments. This paradox—weak recent performance alongside improving long-term policy support—appeals to investors seeking exposure to a market geared for structural reform and economic transformation. The broader context is Saudi Arabia’s Vision 2030, an ambitious plan to diversify the economy away from oil dependence by expanding non-oil sectors, boosting private sector activity, and modernizing fiscal and regulatory frameworks. In a climate of high public spending and occasional revenue volatility tied to oil, the need for external capital to support development and financing becomes more pronounced. The policy shift toward greater foreign participation can be interpreted as a structural move to satisfy this demand by widening the investor base and enhancing market liquidity.
From a strategic standpoint, the potential increase in foreign ownership may create a stronger impetus for both passive and active investment. The logic is that expanding the set of investors with an interest in Saudi equities improves the probability of sustained capital inflows, while also encouraging market participants to reassess exposure levels in the context of reforms, valuations, and growth opportunities. For passive investors, a larger foreign share makes Saudi stocks more compatible with index-driven allocation strategies, as weights in benchmarks could rise in response to a larger free float and improved liquidity. For active managers, the implications include re-evaluating sector allocations, stock selection, and risk models in light of new ownership dynamics and the potential for more pronounced shifts in governance signals and strategic corporate actions driven by foreign ownership considerations.
Alongside these dynamics, observers note that the Saudi market’s need for international capital is particularly acute in the context of Vision 2030’s financing needs and the budgetary pressures arising from sustained high spending and fluctuating oil revenue. The government’s reform agenda aims to unlock capital markets as a cornerstone of financing and growth, with foreign participation playing a pivotal role in widening the investor base and providing external legitimacy to the market’s reform trajectory. As foreign investors increasingly look toward Saudi equities, their participation could help support the pricing of risk, improve market depth, and contribute to more robust price discovery mechanisms. Yet investors also remain mindful of regulatory and governance considerations, with the policy’s final shape likely balancing investor access with stable, well-regulated markets.
Stakeholders, governance, and the approval path
Approval for relaxing foreign ownership limits is not the sole prerogative of a single regulator. While the Capital Market Authority leads the policy initiative and sets technical standards for market operations, the final policy framework would require alignment and sign-off from multiple government stakeholders. This multilayered approval process reflects the interdependencies between economic policy, financial regulation, and macroeconomic strategy. The regulator has signaled readiness to push ahead, but the precise parameters, timelines, and sector-specific applicability remain in flux as agencies coordinate to ensure that any reform aligns with broader national objectives and the stability of the financial system.
Bin Hassan, who sits on the CMA’s board, did not specify the exact size of the stake foreigners may eventually be allowed to hold. The absence of a concrete figure at this stage suggests a deliberative approach, potentially allowing tailored thresholds for different industries or firm profiles, and providing a transition mechanism that mitigates abrupt market disruptions. This approach can help ensure that the market’s structural integrity and governance standards are preserved as foreign participation expands. It also highlights the importance of clear communication with market participants to manage expectations and reduce uncertainty during the transition period.
In addition to regulatory alignment, the reforms will likely involve operational preparations by market participants, including exchanges, brokers, fund managers, and corporate issuers. These entities will need to adjust trading, settlement, risk controls, and disclosure practices to accommodate a broader investor base and potentially higher volumes. Firms with significant foreign ownership already in place may experience shifts in governance dynamics and shareholder engagement, underscoring the importance of robust corporate governance frameworks that can accommodate a more internationalized investor base. The interplay between regulatory changes and market infrastructure improvements will be a crucial determinant of how smoothly the transition unfolds and how quickly foreign capital can be mobilized to support growth and development within the Saudi equity market.
Sectors and players with notable foreign ownership footprints
Even before any liberalization, certain Saudi companies have attracted a sizable share of foreign investment. The firms with the largest percentage of shares owned by investors abroad include insurance provider Tawuniya, technology company Rasan, and telecom operator Etihad Etisalat. Each of these companies presently exhibits foreign participation above 20% but below 25%. The concentration of foreign ownership in these sectors reflects the broader appeal of diversified financial services, technology, and telecommunications as areas where foreign investors have historically found opportunities in the Saudi market. The existence of non-trivial foreign ownership levels in these firms also provides a tangible demonstration of where capital inflows could be concentrated if the ownership cap is relaxed further.
The anticipated policy change could enable a broader distribution of foreign ownership across a wider set of Saudi corporates, potentially accelerating the integration of international shareholders in the governance and strategic direction of these and other companies. For investors, greater foreign access could translate into more comprehensive exposure to Saudi corporate sectors beyond the current archetypes, fostering a more inclusive and diverse investor base. The governance implications would also be meaningful, as foreign investors often bring different expectations regarding transparency, accountability, and disclosure practices. In turn, this could drive improvements in governance standards across the market, reinforcing Saudi Arabia’s broader reform agenda and contributing to more resilient market structures.
As the CMA and government consider the precise contours of the reform, market participants will be looking for clarity on which sectors might be opened more broadly and how such changes impact listing rules, eligibility criteria for foreign buyers, and any transitional measures that would ease the path for current and prospective investors. The ultimate objective is to craft a policy framework that meaningfully expands access to Saudi equities while maintaining orderly markets and robust governance, thereby supporting long-term capital formation and the sustainable growth trajectory envisioned under Vision 2030.
Regional context, reform momentum, and broader implications
The Saudi move to increase foreign ownership aligns with a broader regional trend toward liberalizing financial markets in the Gulf and wider Middle East. Market reforms, improved regulatory clarity, and the promise of higher liquidity tend to attract international capital and contribute to the depth and resilience of local equity ecosystems. In the Saudi case, the reform is part of a comprehensive push to reinvigorate a market that has faced persistent underperformance, while also signaling a continued openness to foreign participation in support of macroeconomic diversification and development goals.
From a strategic perspective, the intervention operates at the intersection of market structure, benchmark indexing, and capital flows. The potential for the Saudi market to achieve a higher weight in MSCI benchmarks is not only an instrument of capital formation but also a signal to global investors about the country’s commitment to open, well-governed markets. The interaction between index methodology and regulatory policy will be central to understanding how quickly and how much foreign capital can be mobilized in response to the reform. As Gulf markets compete for global investment dollars, policy initiatives that enhance accessibility and liquidity can translate into a competitive advantage, attracting asset managers seeking to diversify portfolios with exposure to the region’s growth opportunities and reform narratives.
Moreover, the reform would have implications for foreign exchange, corporate financing, and capital market development in Saudi Arabia. A larger foreign investor presence could influence not only equity prices but also the broader financial ecosystem, including secondary markets, debt issuance, and the availability of new financial instruments tailored to an international investor base. Regulators will need to maintain a careful balance between liberalization and risk management, ensuring that increased foreign participation is accompanied by strong oversight, transparent disclosure, and consistent enforcement of market rules. The continuity of reform momentum will depend on the government’s ability to demonstrate the added value of these changes for the domestic economy and for investors, while mitigating potential vulnerabilities that could arise from faster shifts in ownership and trading patterns.
Conclusion
Saudi Arabia is poised for a landmark adjustment in its equity market framework as the Capital Market Authority moves closer to relaxing the foreign ownership cap from 49%. This potential shift, which could take effect before the end of the year, is designed to boost foreign participation, enhance liquidity, and potentially raise Saudi equities’ weight in global benchmarks such as MSCI indices. The change could attract broader capital inflows from passive and active funds, reinforcing the market’s long-term reform trajectory and broader Vision 2030 goals. While the regulator remains finalizing details and awaits approval from other government stakeholders, the overarching objective remains clear: to strengthen market depth, improve governance, and integrate Saudi Arabia more deeply into global capital markets. The policymaker’s central belief is that expanding foreign ownership would spark a virtuous cycle of investment, price discovery, and growth, supporting the kingdom’s ambitions to diversify its economy away from oil dependence and to finance ambitious development programs.
In the near term, investors will monitor the precise parameters of the threshold, the sectors affected, and the transitional arrangements that could accompany the policy shift. Market participants will also weigh how the change interacts with the ongoing reforms, the sustainability of fiscal policies, and the evolving macroeconomic environment shaped by oil trajectories and spending commitments. If implemented effectively, the policy could mark a turning point for Saudi equities, translating reform momentum into tangible capital inflows, stronger corporate governance, and a more dynamic and resilient market landscape that supports the broader strategic goals of Vision 2030.