Tadawul’s benchmark index TASI gained 5.1% to close at 11.4k points, after the Capital Market Authority (CMA) signaled it may relax the cap on foreign ownership in Saudi equities before year end. The sharpest one-day rally since 2020 — according to Bloomberg’s calculations — pushed market cap up to SAR 9.4 tn, with Alrajhi, Alinma, and SNB banks all logging 10% gains.

REFRESHER- The Capital Market Authority (CMA) is moving to raise the 49% ceiling onforeign ownership in Tadawul-listed companies, Abdulaziz Abdulmohsen Bin Hassan, CMA board member, told Bloomberg earlier this week. The changes “could come into effect before the end of the year,” he said without specifying the new ceiling.

The market is already pricing in the prospect of fresh demand, with JPMorgan estimating that a full removal of the cap could unlock USD 10.6 bn of passive inflows, while our friends at EFG Hermes expect around USD 10 bn, Bloomberg reported.

A sign of progress: “It’s a very exciting and progressive moment, something the market has been waiting for a long time,” Fahd Al Tarzi, CEO of CI Capital KSA, told EnterpriseAM Saudi, adding that the reform could channel foreign demand into sectors such as real estate, mining, and data center operators tied to the Kingdom’s AI agenda.

Corporates are also expected to tap the equity market, with looser ownership rules and the potential for dual-class share structures paving the way for fresh M&A activity and giving family businesses room to sell down stakes while keeping control, Al Tarzi said.

Where things stand today: Firms with the highest foreign ownership included Tawuniya, tech player Rasan, and telecom operator Etihad Etisalat — each with foreign stakes topping 20% but still shy of 25%, according to market data as of today’s close. Saudi National Bank (SNB) counted foreign investors holding more than 17% of its freefloat, while Al Rajhi Bank was under 15% and Alinma Bank slightly above 10%.

Who stands to gain: Al Rajhi would capture the lion’s share of incremental flows, potentially drawing USD 6 bn in fresh inflows, according to EFG Hermes and JPMorgan’s estimates. Saudi SNB and Alinma also set to draw strong investor interest, Bloomberg quoted JPMorgan analyst Pankaj Gupta as saying.

The MSCI factor at play: Raising the cap beyond 50% would overturn years of restrictions and give Saudi equities more heft in MSCI’s emerging-markets benchmarks, drawing in more passive and active flows. Saudi’s weight in the EM benchmarks could rise to roughly 4% from the current 3.3%, according to JPMorgan estimates.

The surge in Riyadh also fed through to broader emerging markets. The MSCI EM stocks benchmark rose 0.4% to its highest since July 2021, with Saudi banks among the top contributors, Bloomberg reported separately.

IN CONTEXT- Riyadh is looking to breathe life into a market that has lagged its peers this year. Just last month, the CMA introduced rules with a 10% ownership cap per non-resident foreign investor (excluding strategic investors) and a 49% aggregate cap for all foreign investors in any single listed company. Foreign strategic investors are also barred from selling shares for two years after acquisition. The move built on an earlier reform in January, when foreigners were first permitted to buy shares and convertible debt in Tadawul-listed real estate firms with assets in Makkah and Madinah.

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