Saudi Foreign Ownership Reform Set to Break 49% Cap by Year-End
Saudi Arabia is preparing to lift its long-standing restriction on foreign ownership of public companies, a move that could reshape its $2.3 trillion equity market. The Saudi Foreign Ownership Reform, led by the Capital Market Authority (CMA), aims to remove the 49% cap on foreign stakes in listed firms—a rule that has defined the market for decades.
Abdulaziz Abdulmohsen Bin Hassan, a board member of the CMA, confirmed that the regulator is “almost there,” with implementation expected before the end of 2025. While final approval from other government bodies is still pending, the CMA has signaled full readiness.
Reform Could Boost MSCI Weighting and Passive Inflows
As of September 23, Saudi stocks represent about 3.3% of the MSCI Emerging Markets Index. However, MSCI reduces the weight of stocks subject to foreign ownership limits. Once the cap is lifted above 50%, Saudi equities will be eligible for higher index weightings, triggering automatic rebalancing across global passive funds.
Fadi Arbid, CIO of Amwal Capital Partners, emphasized the impact: “A decision to relax means the weight in MSCI will all of a sudden go up and more capital will flock to the market.” This shift could attract billions in passive inflows, while also prompting active managers to reassess their exposure.
Market Down 9.6% in 2025 Despite 35% Foreign Trade Share
The reform comes at a time when Saudi Arabia’s main index on Tadawul is down 9.6% year-to-date, making it the worst performer in the Gulf region. In contrast, the MSCI Emerging Markets benchmark has surged 25% in dollar terms.
Despite the downturn, foreign investors remain engaged. In August, they accounted for 35% of all trades on the exchange. However, total daily turnover has dropped to its lowest since 2023, suggesting that foreign capital is gaining share in a shrinking market.
Vision 2030 Drives Urgency Amid Budget Pressure
Saudi Arabia’s push for reform is closely tied to its Vision 2030 economic transformation plan, which demands significant capital investment. With Brent crude trading around $66 per barrel—far below the country’s budget breakeven of $94—the government faces mounting fiscal pressure.
Bloomberg Economics estimates that domestic spending by the sovereign wealth fund pushes the breakeven even higher, to $111 per barrel. The Saudi Foreign Ownership Reform is therefore not just a market adjustment—it’s a strategic lever to attract foreign capital and offset declining oil revenues.
Top Firms Already Near 25% Foreign Ownership Threshold
Several Saudi companies are already testing the limits of foreign ownership. Insurance provider Tawuniya, tech firm Rasan, and telecom operator Etihad Etisalat each have foreign stakes above 20%, though still below the current 25% ceiling.
These firms are likely to benefit immediately from the reform, as investors seek exposure to high-performing names. While the broader market struggles, individual stocks like Saudi National Bank (+11% YTD) and Saudi Telecom Co. (+13% YTD) are showing resilience.
Reform Signals Long-Term Confidence in Saudi Equities
Beyond the short-term boost to passive flows, the Saudi Foreign Ownership Reform sends a strong signal to active investors. It reflects a broader commitment to market liberalization and global integration—key pillars of Vision 2030.
As foreign investors gain greater access, the reform could catalyze a re-rating of Saudi equities, improve liquidity, and deepen institutional participation. For a market seeking revival, this policy shift may be the turning point.
Also Read: Foreign Ownership Reform to Boost M&A Activity in Saudi Arabia
