Saudi cash funds exceed foreign investment limit by 15.5 billion riyals

Saudi money market funds are facing new restrictions after the Capital Market Authority issued a circular limiting their foreign investments to 5% of their net assets. This comes at a time when these funds have experienced remarkable growth, with their assets increasing from 76.7 billion SAR at the end of 2023 to 133 billion SAR currently—a rise of 56.3 billion SAR (73%) over the past year. The circular requires funds with foreign investments exceeding 20% to reduce them to below that level within six months, creating a compliance gap of approximately 15.5 billion SAR. Current figures indicate that the external investments of the ten largest funds amount to about 20 billion SAR outside Saudi Arabia, slightly exceeding the permitted limit. To achieve compliance, funds are likely to rely on various strategies such as increasing local assets, not renewing external investments upon maturity, or a combination of inward and outward flows. The rapid growth of these funds—more than quadrupling in just one year—plays a significant role in this context. This development enhances the prospects for the domestic sukuk and bond markets, as the compliance gap is estimated to represent nearly half of the projected trading volume in the debt market by 2025. This could boost demand for debt instruments and influence issuance and retention markets. Importantly, the challenge extends to future capital flows. The continued rapid growth of these funds may turn them into a primary driver of demand for local financial instruments, strengthening market capabilities and deepening liquidity. Ironically, the real impact will depend on how new funds flow into the market, rather than existing funds alone.

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