Saudi Arabia's stock market surged after Bloomberg reported the Kingdom may soon ease foreign ownership limits for listed companies. Investors are betting on a flood of investment to the Gulf nation, if it eases the current cap of 49%.

Riyadh

Saudi Arabia is moving towards lifting restrictions on foreign ownership in its banking sector, a development that has generated significant interest among investors. While the change has been discussed for some time, the recent announcement has led to increased market activity and optimism about the potential for greater liquidity and international participation.

Market analysts highlight that large and liquid banks, particularly Reggie and S&P, are likely to benefit most from the anticipated inflows. The move is also expected to encourage more active foreign asset managers to consider Saudi equities, potentially benefiting smaller and mid-cap companies by improving market liquidity. The broader Saudi stock market has faced challenges this year, but the fundamentals of many companies remain strong, and the regulatory change could help drive renewed interest and support future IPO activity.

Ames: Saudi banks are winners from foreign ownership change

I know there had been market chatter about the potential lifting of these cap on foreign ownership. And yet still yesterday we had such a substantial reaction in the towel. How much of that do you think is baked into the price and how much of this is actually a positive surprise to investors who like yourself have been trading and looking at local equities for many years now. I think obviously the timing of this was a nice National Day gift from Saudi Arabia. But I think this has been discussed for a long time right that this is an option. It would be great for this to happen. We would love more foreign investors coming into the market. This has been a limitation. So it's positive. It's been discussed. Obviously the day of the announcement is always very exciting. And afterward there's a lot of potential for you know more liquidity to come into the market. And I think that's what you saw in market participants. Pretty excited about yesterday. Yeah. Yeah. I mean at this point obviously it's still Bloomberg reporting hasn't been completely finalized yet. But it seems like you know that the work is in motion at least. What names do you think would stand to benefit the most in terms of the potential inflows coming into Saudi. I think in general that's been pretty widely discussed. It's the large and liquid names in particular Reggie and S&P the two largest banks just by the nature of them. Now there's always a number of regulatory steps that would have to happen between this announcement coming and those banks actually being fully open. We've seen that in a number of markets that sometimes take some time. Different restrictions can happen. But overall this is very positive and it's particularly positive for Reggie. I think the calculations are that Reggie would be a top 10 name in as a single E.M. company globally in the MSCI index. If you did the calculations of what the sizing could be without a foreign ownership limit. Yeah. Interesting that obviously the MSCI component could be a major factor as well determined for further inflows coming into Saudi Arabia as a local and sort of regional focused asset manager. Do you welcome the addition or would you welcome the potential addition of new foreign asset managers into the region as well. Yes certainly. I mean I think in general liquidity is a tide that lifts all boats right. It's very helpful. And you know in the largest names but also further down into the market. You know we see active managers globally are still pretty underweight. Saudi Arabia I think it's one of their largest underweights with any. And so to see hopefully this news trigger more active managers to come and look at the market particularly some of the smaller and mid cap companies which we view as very high quality businesses where sometimes the only lacking thing is market liquidity. We see this as a huge positive right because that liquidity can trickle down beyond just those top few names. Yeah. So I see this as sort of a you know it's a structural adjustment. It's regulatory driven. But then we can't avoid the macro as well. Francis and the fact that that's a dowel really has underperformed so much this year. It's one of the worst performing global indices. How much of that is simply just just the oil effect. Do you think. And at what point are foreign investors going to be able to dissociate that the Dow will index from what's happening to the price of oil given the diversification efforts in the kingdom. I mean I think we've seen massive evolution in that just in the last five or six years. Right. I do think there's a large number of investors now that focus very significantly on the non-oil part of the Saudi market. That share of the Saudi economy has grown quite a bit. Right. There's obviously more to go. There's more development. But you know yes it's been you know you can view it as a great opportunity to buy. Right. The weakness that we've seen this year because the fundamentals of a lot of the companies have remained quite strong. Right. I just met you know a number of these companies in the last few weeks at various conferences and in general the tone is quite bullish and that hasn't been reflected in the market. So one hopes that announcements like this can just as I said drive interest throughout you know the market itself not only those top names which is very important but also into you know the you know almost 200 companies now. Right. That we view is pretty highly investable in that in that market. Yeah. Do you think this is going to unlock potential more IPO activity as we head into the last couple of months of the year. I mean IPO activity has been a sprint for the last five years. It's been pretty nonstop. I think from from our perspective as a local asset manager I think the whole team has has been nonstop on this. Yeah. Now coming up to five years. But certainly you know there is the deal pipeline. I think we're always aware of the deal pipeline and it's great news like this can sometimes help accelerate what's really a company decision right in the end to to move forward with the listing. And I do think there's some really interesting very high quality names that we know are preparing to list. So hopefully the stunts support that decision. Yeah. And then just to round things up how do you think this sets that's a dowel up to compete with other regional indices. And I think it's already pretty well set up right. Like this is a this is a very deep market within the region. You've had yes very strong performance in some of the other markets this year. But I think you've had strong performance in Saudi in the previous couple of years. So I think overall the whole move in the GCC has been excellent for the last few years. Right. As more companies have listed as companies have grown as you've seen really significant. In inbound investment and also domestic investment in growing these economies you know that that's improved all markets. And yes Saudi it's it's been a challenging first part of the year. But hopefully this news kind of allows people to clear their heads and focus on you know where things can go from here.

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