In a landmark move to attract global capital, Saudi Arabia has thrown open the doors of its massive equity market to all foreign investors, removing long-standing qualification barriers. The kingdom's Capital Market Authority (CMA) announced the sweeping changes, effective from February 1, marking a significant acceleration in its financial market liberalisation agenda.
End of the QFI Era: What Changed?
The regulator has completely abolished the concept of the Qualified Foreign Investor (QFI). Previously, international investors needed to meet specific criteria, such as having at least $500 million in assets under management, to trade directly on the Tadawul, the Middle East's largest stock exchange. The CMA's statement, released after market close on Tuesday, confirmed that all such restrictions have been eliminated, allowing all categories of foreign investors to participate without meeting any qualification requirements.
This decision directly addresses the need to revive the Saudi market, where the benchmark Tadawul All Share Index fell nearly 13% in 2023, underperforming other major emerging markets. As of the end of September, foreign ownership in the $2.3 trillion Saudi stock market stood at over 590 billion Saudi riyals ($157.3 billion), with about 88% of it in the main index.
Drivers and Immediate Implications
The reform is seen as crucial for Riyadh, which faces growing budget deficits driven by high spending and fluctuating oil revenues. Attracting foreign investment is now a pronounced economic priority. A wider investor pool is expected to benefit the many local companies seeking listings; as of December, 40 firms had applied for IPOs, with the total number of hopefuls reaching up to 100.
Market experts hailed the move. Adnan El-Araby, an investment manager at Barings, stated, "The continued progress towards the liberalisation of Saudi Arabia’s capital markets represents not only a significant milestone for the kingdom itself but also for the wider region. By lowering entry barriers and attracting a broader spectrum of investors, these reforms are poised to inject some interest into Saudi Arabia’s equity market."
Anticipated Inflows and Future Focus
The announcement brings a much-anticipated decision on foreign ownership limits back into focus. While the recent change removes investor qualifications, market participants are now watching for potential increases to the foreign ownership limit (FOL) for individual stocks, currently often capped at 49%. Naresh Bilandani, managing director of equity research at Jefferies International Limited, provided an analysis: "Our index team calculates that a foreign ownership limit increase... from current 49% to 60-100% could attract $3.4 billion-$10.2 billion of passive inflows from MSCI and FTSE index trackers."
This reform follows market speculation in September 2023, which had briefly lifted local stocks. The CMA's decisive action is a clear signal that Saudi Arabia is accelerating its Vision 2030 economic transformation plans by deepening its capital markets and integrating more fully with the global financial system.
