Alay Patel, Co-Portfolio Manager of Barings Emerging EMEA Opportunities, comments on Saudi Arabia opening the main market to all non‑resident investors:
Saudi Arabia’s latest liberalisation move in eliminating the Qualified Foreign Investor (QFI) designation and opening the main market to all non‑resident investors, marks a meaningful evolution in the Kingdom’s capital‑markets framework. By materially lowering entry barriers and simplifying market access, the reform should enhance liquidity, broaden the investor base, and support a higher weighting for the Tadawul in global indices such as MSCI Emerging Markets index.
It also comes at a time of rising domestic issuance, with Saudi Arabia continuing to cultivate a robust IPO pipeline, and an economy that is rapidly diversifying under Vision 2030—together creating a more compelling long‑term structural story.
However, the more significant implications lie in what this could signal: A precursor to further liberalisation, most notably the eventual removal of foreign ownership limit (FOL) rules. That would be the true catalyst for driving substantial liquidity through passive foreign inflows.
We do not view this interim step as transformational for several reasons:
- Challenging macro backdrop: With oil prices in the $60s—well below our estimated fiscal breakeven near $100—the Kingdom faces a widening fiscal deficit and has already begun cutting capital expenditure.
- Tight domestic liquidity: Local retail investors can earn comparable returns through time deposits, limiting immediate domestic participation.
- Institutional access already broad: Deep‑pocketed institutional investors were already able to participate under the previous framework, so incremental near‑term flows may be modest.
- Persistent geopolitical risks: Beyond the fallout from the Israel‑Iran conflict in 2025, tensions between Saudi Arabia and traditional allies such as the UAE are adding further uncertainty.
- Weak market sentiment: The Tadawul’s subdued average daily trading volumes and its position as one of the poorest performers in emerging markets in 2025 highlight ongoing investor caution.
In conclusion, while this reform is a welcome and necessary step in modernising Saudi Arabia’s capital markets, it is not a game changer on its own. Meaningful transformation will require further reforms, particularly a full relaxation of foreign ownership limits to unlock the next phase of foreign participation and liquidity.
