Saudi Arabia's King Abdullah
Saudi Arabia's King Abdullah Reuters

Saudi Arabia is opening up its stock market for foreign investment, as the oil-rich nation looks to align its economy with global market forces.

Bloomberg, citing the official Saudi Press Agency, reported that the nation's cabinet authorised overseas financial institutions to trade equities in the Tadawul All Share Index. It also empowered the country's stock market regulator to determine the timing to implement the changes.

Saudi's Capital Market Authority had drafted rules for international investors more than a year ago. The rules require at least $5bn (£2.92bn, €3.7bn) of assets under management and a five-year operating history for foreign investors to become eligible.

The rules are designed to limit speculative inflows and would cap investment in local companies, a person with knowledge of the matter told the news agency in May.

At present, the $531bn stock market is open only to foreigners from the six-nation Gulf Cooperation Council apart from domestic investors.

The move is part of the country's $130bn spending plan to develop non-oil industries. It would also help include Saudi shares in MSCI's emerging markets index. The economy has expanded an average 6.4% in the past four years.

Saudi Arabia is the biggest stock market outside China where domestic shares are excluded from MSCI's global gauges because of limits on foreign investors, according to data compiled by Bloomberg.

The Tadawul index has risen 14% so far in 2014, compared to a 6% increase in the MSCI Emerging Markets Index and a 15% increase in the MSCI GCC Countries Index.

Major companies listed on the stock exchange include the world's biggest petrochemicals producer Saudi Basic Industries Corp, Prince Alwaleed bin Talal Al Saud's investment vehicle Kingdom Holding Co and the largest Islamic lender Al Rajhi Bank.

The Tadawul All Share index closed at 9,750.02, up 0.14% on 21 July.