The Saudi financial market is making history by opening its doors to foreign investments.

The biggest stock market of the Middle East, valued at more than $530 billion and one of the biggest expected new entrants into the global emerging market (MSCI’s), bigger than Moscow, Malaysia and Mexico, Tadawul had so far remained exclusive to Saudis.

At a later stage, however, GCC nationals were allowed entry. Now international investors will soon be crashing this all-Saudi party.

There are still some restrictions, no direct individual investors are allowed, only funds managing at least $5 billion assets and trading for at least 5 years are allowed to invest in the market, and they still cannot own more than 5 percent of any company and no group can own more than 20 percent of any given stock. That in addition to the fact that some companies working on the construction projects of the two holy cities, Makkah and Madinah, will be off limit to these foreign funds.

The stories born in and around the Saudi stock market are both fairy tales of successes, and horror stories full of tears and bankruptcy. The market has gone through a lot of changes in terms of valuation and regulations in the last few years, moving from almost a gambling arena where thousands of Saudis considered it to be the quickest and easiest way to accumulate fortunes, to a more stable and deep market, transparent and well regulated.

That is what makes the opening of this market to foreign investors all the more important. Everyone is keeping his fingers crossed and waiting to see how the qualified foreign funds would approach the market. “There is a strategic interest in being in Saudi Arabia,” said James Reeve, London-based economist at SAMBA, one of Saudi Arabia’s largest banks, to Financial Post. “People see it as a big and important market as the country has a lot of assets in terms of natural resources.”

However, lucrative opportunity as it may seem at the first glance there are still a lot of dynamics that are yet to be seen in action. For one thing, analysts say that valuations are already high by historic standard, Tadawul is currently trading on more than 20 times the 12-month trailing earnings. “While this is by no means the highest valuation in the world right now, it is significantly above Riyadh’s long-run average,” reported Financial Times. Then, there are the unstable oil prices. As the whole country’s economy is tied to oil, with reserves estimated at $700 billion, the stock market prices are usually directly influenced by the gains and losses in that market.

For those reasons, analysts are not expecting a rush of investments in the first days, or even months, of the opening to foreign investments. “I don’t think there will be a big bang opening with lots of investors and lots of trade – there will be some,” said Arindam Das, Middle East North Africa head of HSBC Securities Services, to Financial Post. “But that does not in any way undermine the potential implications of this development — it’s an absolute game changer in the history of the Middle East capital markets.”

Jason Tuvey, an analyst at Capital Economics, said to Financial Times, “The countdown to the opening up of the stock market has been met with fervent optimism (but) we think here are a couple of reasons to be cautious. (It) is unlikely to result in a wave of foreign investment.”

The expected slow start would change once Tadawul is accepted into the MSCI’s Emerging Markets index. “I don’t think we will see a large inflow of money (next week) but, over time, there will be a substantial amount of money going in to Saudi Arabia”, says John Sfakianakis, to Financial Times. “I see a few billion dollars coming in (this year), then I see a second phase of billions of dollars after (MSCI) inclusion,” added Sfakianakis, who estimates this second wave at $20-$30 billion.

All in all, it is hoped that this move would bring money into the lively economical cycle of the country and it would help it diversify its income and finance its public infrastructure spending. And needless to mention, strengthening the stock market stability and upholding its transparency and trading practices.