Saudi Arabia’s stock market staged a sharp rally this week after signals that the country may loosen restrictions on foreign ownership.
The Tadawul Index jumped 5% on Wednesday, its biggest one-day gain since 2020, after a board member of the Capital Market Authority suggested that the 49% foreign ownership cap could be raised by the end of the year.
UBS analysts estimate such a move could attract as much as $10 billion in passive inflows, lifting Saudi Arabia’s weight in emerging-market indices by 25–28%.
Banks led the surge, with Al Rajhi, SNB and Alinma among the biggest beneficiaries, some hitting their daily 10% limits. While the index gave back 1% on Thursday, analysts said momentum could carry into the months ahead.
“We do not believe the CMA would propose a change if it didn’t anticipate government approval,” analysts led by Jon Peace wrote, pointing to Qatar’s precedent of raising its limit to 100% in 2021, which sparked a lengthy run of outperformance.
Valuations also add fuel to the rally. Most Saudi sectors are trading at notable discounts to their five-year average price-to-earnings ratios.
Banks stand out, with earnings upgrades of 5% year-to-date, well above the emerging-market average, yet their shares are up only 6% compared with a 17% rise for EM banks overall.
Analysts point out that Saudi banks should have gained more than 20% if valuations had kept pace with earnings upgrades. Even after the recent rally, top picks such as SNB, SABB and Riyad Bank still trade at 20–35% discounts to their five-year averages.
Looking ahead, third-quarter results due in late October may provide another catalyst. UBS highlighted that loan growth was running at 15.2% in July, comfortably above the consensus expectation of 12.7% for 2025, suggesting that banks may raise guidance.
While slower deposit growth pressures net interest margins, current expectations for Q3 earnings are at the low end of guidance, reducing the risk of disappointment.
Source :
https://www.investing.com/news/stock-market-news/why-saudi-arabia-stock-market-is-rallying-this-week-4257048
