DUBAI: Saudi Arabia’s stock market, valued at $585 billion, opened up to direct foreign investment for the first time today, as the kingdom seeks an economic boost amid low global oil prices.

The opening of the Tadawul Saudi Stock Exchange allows companies, particularly those that are not in the oil business, to raise money straight from foreign investors, with the goal of expanding businesses, diversifying the economy and creating more jobs for the kingdom’s growing population. Before today, foreigners only could access the market indirectly, through a local Saudi institution.

The stock exchange’s estimated value makes it biggest in Middle East. Petrochemical firms make up a fifth of Tadawul, with heavyweights like Saudi Basic Industries Corp among those listed.

The move comes at a crucial time for Saudi Arabia, whose revenue has suffered from a plunge in oil prices over the past year. That lower revenue could constrain government spending, which in turn would affect the many companies relying on government projects. The kingdom has been drawing from its robust foreign reserves to maintain spending.

An influx of foreign money could ‘help to plug some of external shortfall and slow the pace at which Saudi Arabia is drawing down its reserves’, says the London-based analysis firm Capital Economics.

The firm says Saudi Arabia has been traditionally cautious about foreign influence in its political and economic affairs. Its decision to open its stock market could be seen as part of a broader liberalisation effort in the kingdom’s economy. The ultraconservative country is already awash with some of world’s biggest brands and many multinational firms have their factories and facilities there.

However, foreign investors say they are taking a cautious approach and warn not to expect an immediate rush of foreign investment into the Middle East’s biggest market.

“In the immediate to short term, the money flow will be gradual,” says Sachin Mohindra, Gulf portfolio manager for Invest AD.

One reason for the cautious approach: When local investors anticipated the opening of the market, they bid up stock prices, leaving them overvalued in the opinion of fund managers.

Additionally, there are regulations in place for foreign investors. Only financial institutions with $5 billion or more of assets under management that have been in operation for five or more years are eligible to invest, though the regulator says it could make exceptions.

Other regulations are that qualified foreign investors cannot own more than five per cent of the shares of any company. These investors as a whole cannot own more than 20 per cent of shares in the roughly 165 listed companies.

There are also five companies that will be off limits to foreign investors. Most are in construction in the Muslim holy cities of Mecca and Medina, which are closed to non-Muslims.

The kingdom’s stock market regulator, Capital Markets Authority, says the decision to open the market to direct foreign investment is aimed at supporting increased participation of institutional investors and reducing role of smaller investors. As per Tadawul, Saudi individuals make up 34.4 per cent of stock market ownership, but account for nearly 90 per cent of trading activity. That has exposed the market to volatility.

John Sfakiankis, Middle East director based in Riyadh at emerging markets investment firm Ashmore Group, says he does not expect a big influx of foreign investment right away. He expects a gradual flow over next few years of $20 billion to $25 billion.