RIYADH: Saudi Arabia's local-currency debt market is set for increased foreign investment with its riyal-denominated government sukuk set to join the JPMorgan Government Bond Index-Emerging Markets in 2027.

According to Fitch Ratings, the inclusion follows the Kingdom’s efforts to build a domestic yield curve, improve local-market liquidity and reduce reliance on foreign-currency funding.

The inclusion reflects the Kingdom’s ongoing efforts under the Financial Sector Development Program, a Saudi Vision 2030 initiative aimed at deepening the capital market, broadening the investor base and improving the efficiency of government financing instruments.

As part of its broader economic diversification efforts under Vision 2030, Saudi Arabia also aims to attract $100 billion in foreign direct investment annually.

Fitch said the inclusion in the JPMorgan index "should attract further foreign investment," nothing that non-Saudi investors’ share of the Kingdom's sovereign’s primary debt issuances rose to 15 percent in the first half of 2026 "despite Iran war-related volatilities."

The agency also pointed to a change in in the equity market that saw foreign ownership of the main market’s free float rose to 12.7 percent at end-August.

"Saudi Arabia’s removal of the Qualified Foreign Investor framework from February 2026 should broaden participation," it added.

Rising foreign share and geopolitical risks

Commenting on Fitch’s analysis, Kapil Chadda, partner at Arthur D. Little, said that the “inclusion puts Saudi local debt directly into the benchmark universe of global EM local-currency funds, creating structural foreign demand, rather than relying purely on discretionary investors.”

He added: “On the bottom line, riyal sukuk will start transitioning from a largely domestic market into a mainstream global EM rates market.”

In April, Saudi Arabia’s Ministry of Finance welcomed JPMorgan’s announcement that Saudi riyal-denominated government sukuk would be included in the GBI-EM from Jan. 29, 2027, on a phased-in basis, with an expected 2.52 percent weighting in the index.

“Beyond the initial index-driven buying, how much active money stays will depend on further gains in market liquidity. Those gains build on reforms such as opening the primary dealer program to international banks and linking with Euroclear,” Vijay Valecha, chief investment officer at Century Financial, told Arab News.

He added that recent market activity suggests that geopolitical risk has not translated into a broad withdrawal from Saudi credit.

“For riyal-denominated government sukuk specifically, the forthcoming index inclusion should help offset some of the market-access and liquidity concerns that can amplify risk premiums,” said Valecha.

The Century Financial official explained that geopolitics remains an important risk premium, but current evidence points to continued investor appetite for Saudi sovereign credit rather than a blanket avoidance of the Kingdom's debt offereings.

Fitch Ratings also said the Saudi Exchange remained the largest bourse in the Gulf Cooperation Council in September, accounting for about 63 percent of the region’s combined stock-market capitalisation of roughly $4 trillion.