Saudi Arabia Plans to Change Foreign Investment Rules

In another step to attract foreign investors as part of its strategic objectives to develop the capital markets, and based on the Capital Market Law, Saudi Arabia’s Capital Market Authority (CMA), has proposed amendments to facilitate foreign investors gain direct access to Saudi Arabia’s main stock market Tadawul.

The CMA issued draft amendments for public consultation until 20 December, which aims to streamline investment account procedures and attract more international participation. The current Tadawul regulations allow non-resident foreign investors to trade in the parallel market Nomu and the debt market.

The key proposals include allowing GCC-based foreign investors to directly trade shares on the main market, expanding access beyond the debt market, parallel market Nomu, and derivatives. Individual foreign investors who previously resided in Saudi Arabia or GCC countries would also be permitted to maintain their accounts even after leaving the region.

The proposals aim to facilitate the procedures for opening and operating investment accounts for a number of categories of capital market institutions’ clients, while enhancing the protection of the clients, in addition to expanding the scope of foreign natural persons who are allowed to invest in shares listed on Tadawul, the CMA said.

It may be recalled that the Saudi government has launched its Qualified Foreign Investors (QFI) program in 2015 to allow certain international institutional investors with direct and consistent access to the Saudi capital market. It was subsequently amended in 2019 to allow for a broader range of institutional investors to qualify as QFIs.

Foreign Investments

One of the key objectives of “Vision 2030” is to attract foreign investments as the Kingdom seeks to position itself as a global business hub. According to the data from Saudi Central Bank (SAMA), foreign investments in Saudi Arabia stood at $680 billion by the end of Q1 of 2024, up 6% from Q4 of 2023.

According to Tadawul, the net foreign purchases for the first nine months of 2024 stood at $4.37 billion, reflecting a 36% increase from the previous year. The QFIs led these international purchases, contributing $1.01 billion in September, while foreign residents added $20.41 million to their holdings.

The total value of foreign ownership in Saudi stocks reached $110.59 billion in September, a y-o-y increase of 13.39%. On the other hand, Saudi nationals held stocks valued at $252.06 billion in the main market, up 18.71% from the same period last year.

Institutional investors reported stock holdings of $2.31 trillion by end of September, representing a 15.01% decline y-o-y while investors from the GCC region owned stocks worth $20.75 billion in the Kingdom’s main market by the end of September, marking a 36.85% increase compared to the previous year, data from Tadawul showed.

Statista, a German online platform that specialises in data gathering and visualisation, said that Tadawul, with a market capitalisation of $2.93 trillion, has been ranked the third largest in the Europe, Middle East, and Africa region.

Parallel Market

The data also showed that foreign ownership in Nomu reached $243.47 million by the end of September registering an increase of 67.54% y-o-y.

Both individual and institutional Saudi investors held stocks valued at %14.47 billion till September, growing 16.73% from the previous year. Stocks held by GCC investors in the parallel market stood at $65.99 million, increasing by 26.85% y-o-y by September-end.