A gamechanger in Saudi equities

The old adage that stock markets swing between fear and greed has been borne out by the mixed performance of Saudi Arabia’s Tadawul All Share Index over the first nine months of 2025.

A turning point came on Wednesday September 24 when the Tadawul staged its biggest single-day rally since 2020, after a Capital Market Authority board member signalled that the 49 percent foreign ownership cap on Saudi equities would be lifted.

Dubbed “Green Wednesday”, the announcement triggered a 5.1 percent jump in the index, adding $124 billion in market value. Bank stocks surged a record 9.2 percent on expectations of majority foreign ownership by year-end.

JP Morgan estimates the move could attract $10 billion in passive inflows, given Saudi Arabia’s 3.3 percent weighting in the MSCI Emerging Markets Index, the benchmark for $1.4 trillion in global funds.

More broadly, the relaxation – or even end – of foreign limits on listed companies is a game-changer as it accelerates the globalisation of Saudi capital markets. It puts the region on the radar of global investors eager to tap into the non-oil growth potential of the Arab world’s only trillion-dollar economy.

Yet Green Wednesday’s euphoria followed months of market malaise.

By mid-September the Tadawul had slumped 11 percent, ranking among the world’s worst-performing major emerging markets – even as the MSCI Emerging Markets Index surged 25 percent. It also stood out as the GCC’s weakest stock market, dragged down by its twin energy colossi Saudi Aramco and Sabic.

A slide in Brent crude from $80 in January to as low as $65 a barrel by early September has left the kingdom nursing a significant budget deficit. To plug the gap, Riyadh turned to a record $22 billion in global bond and sukuk issuance, while imposing draconian spending cutbacks – even on flagship Vision 2030 giga-projects such as Neom.

Trading volumes fell to two-year lows, while domestic institutions and retail investors were steady sellers. Even valuations at five-year lows failed to trigger a sustainable rally. The end of an IPO boom underscored the gloom, as once-coveted listings slipped below offer prices and companies pulled planned flotations.

The geopolitical impasse in the Middle East only amplified the bearish sentiment in Saudi equities this summer, as Israeli and US strikes on Iran coincided with escalating violence in Yemen, Syria, Gaza and the Red Sea.

Yet even against this hostile macro backdrop, foreign investors added to their shareholdings in the Saudi National Bank and Saudi Telecom, reflecting global institutional investor interest in the Gulf’s largest banking and telecoms sector.

Still, despite the Green Wednesday momentum, Saudi equities remain underperformers in 2025. The boost still means that the Tadawul has lost 5.4 percent while the MSCI All Country World index has risen 17 percent in 2025.

A $124 billion one-day surge in the market cap of Saudi equities seems unsustainable, if it is based on the statement of a single CMA board member.

The Saudi government must now amend legislation to permit foreign majority ownership of listed companies, which could lead to significant changes in corporate governance, disclosure norms and even Saudi business culture.

The markets will want to see legislative change and amendments to the company bylaws. If this does not happen soon, Green Wednesday’s bullish frenzy could once again lapse into the bearish torpor that prevailed until mid-September.

After all, the global oil glut is a reality that is likely only to worsen this winter. Goldman Sachs’s oil economists estimate that Brent crude will fall to “the early 50s” in 2026.

The energy sector will remain a drag on the Tadawul index. However, the relative performance of Saudi banks is expected to increase – they are likely to be the largest beneficiaries of a relaxation in foreign ownership limits and an increase in Saudi Arabia’s country weight on the MSCI emerging market index from 3.3 to 4 percent.

For now, global investors remain underinvested in the Arabian Gulf’s largest and most populous sovereign state – but whether Riyadh can turn episodic rallies into lasting credibility is an open question.