Regulators widen access to foreign investors, but pay-off could be slow: The Kingdom is pressing ahead with market reforms aimed at making it easier for foreign investors to trade its stocks, though analysts say the benefits are likely to be felt later rather than sooner, Bloomberg reports. Despite that, non-GCC foreign investors already accounted for a record 35% of Saudi equity purchases last quarter, according to Bloomberg Intelligence.

This comes even as Tadawul’s benchmark index TASI continues to lag behind regionalpeers this year. The Capital Market Authority (CMA) told the business information service that opening the market further to GCC residents was a “natural next step,” while Tadawul said it expects the approval process for new Saudi depositary receipts to mirror timelines for IPOs and dual listings.

What pundits are saying: “All of these reforms signal a conscious transition from an oil dependent economy to a global investment destination,” said Jitania Kandhari, deputy chief investment officer at Morgan Stanley Investment Management. “We are keeping a keen eye on all reforms, small or large, that might increase liquidity in the market and increase the number of investible companies,” said Sammy Suzuki, head of emerging market equities at AllianceBernstein.

IN CONTEXT- In July, the CMA unveiled changes allowing GCC residents to trade Saudi stocks directly, permitting foreign companies to issue Saudi depositary receipts, and easing rules for funds and asset managers. Separately, a new law was issued to expand ownership rights for non-Saudis.

For now, valuations remain a major draw: Tadawul is trading at its steepest discount to the MSCI ACWI Index in nearly nine years, about 32% based on forward P/E ratios, following a sell-off that pushed prices lower in July. Average daily turnover fell to a two-year low of USD 1.25 bn last month as domestic demand softened, underscoring near-term challenges for liquidity.

Fiscal prudence spurs foreign trust: Weaker oil prices, which have hovered below USD 70 / barrel amid Opec+ supply increases, are prompting the government to rein in spending on some projects. Analysts say this restraint is reassuring some foreign investors, with EPFR data showing steady inflows to Saudi-focused equity funds since May. Suzuki says cheaper valuations and gradual liquidity improvements could encourage more foreign money to return.

The caveat? Market watchers caution that the impact of reforms will take time to materialize. “Reforms take a long time to bear fruit. In the short to medium term, economic growth, that is so far dependent on oil prices, will determine market performance,” Kandhari noted.

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