RIYADH, Saudi Arabia — The Saudi government has approved a measure that will open the region’s largest stock market to direct foreign investment next year, news that sent the exchange surging Tuesday to its highest level in nearly seven years.
The Tadawul All Share Index closed up nearly 3 percent.
The Cabinet’s decision Monday, reported by the official Saudi Press Agency, paves the way for foreign financial institutions to directly buy and sell stocks listed on Saudi Arabia’s $530 billion Tadawul All Share Index starting sometime in the first half of 2015.
Foreign investors outside the six-nation Gulf Cooperation Council currently can buy Saudi stocks through swaps and exchange-traded funds.
A number of powerful companies are listed on Tadawul, including one of the world’s largest petrochemical groups, Saudi Basic Industries Corp.
The kingdom has hundreds of billions of dollars in foreign reserves. The decision to allow direct foreign investment in the stock market comes as Saudi Arabia works to diversify its economy away from oil in the face of a growing young population.
The London-based Capital Economics consultancy said restrictions on foreign investment have not been a major impediment to the development of the Saudi stock market. Because of that, it says the decision to open the market will not necessarily mean a surge because the valuation of stock prices is ‘‘already looking stretched.’’