DUBAI (Reuters) -Saudi Arabia's stocks posted their biggest daily rise since 2020 on Wednesday, following a report that the markets regulator may ease rules capping foreign ownership of listed companies. 

The Saudi benchmark index surged more than 5% to its highest since May, after Bloomberg News reported that regulators may soon ease the 49% cap on foreign ownership of listed firms, a move that could help revive interest in the Arab world's biggest stock exchange. 

"It could come into effect before the end of the year," CMA board member Abdulaziz Abdulmohsen Bin Hassan was reported as saying in the report.

The move could bring an additional $9.5 billion-$10 billion of passive inflow into Saudi Arabia from both MSCI and FTSE index trackers if implemented to 100%, according to UBS projections, said Victor Martin, the bank's head of portfolio trading for the EMEA region.

The Saudi benchmark index is down 9.6% so far this year, underperforming other regional markets such as Dubai and Kuwait - up 13.8% and 20%, respectively - in large part due to weaker oil prices. 

The kingdom's largest blue chips, shares that once anchored investor sentiment, have struggled to hold gains in 2025, with Saudi Aramco down about 10% year-to-date.

"We know that even with the current 49% foreign ownership limit, we never get foreigners owning more than 15% on average, at most of the large caps," said Mohammed Ali Yasin, CEO of Ghaf Benefits at Lunate.

Wednesday's rally reflects expectations that an easing of the rules would boost the weight of Saudi public companies in the bigger MSCI and FTSE indexes, increasing foreign inflows into those shares, he said.

"This step will also strengthen liquidity and depth in the Saudi market and tighten bid-ask spreads and expand institutional participation," said Tariq Qaqish, deputy CEO of FH Capital in Abu Dhabi.

Saudi Arabia has tried to attract foreign investors with efforts including establishing exchange-traded funds with Asian partners in Japan and Hong Kong.

Regulators in January also opened the door for foreigners to buy listed firms that own real estate in Mecca and Medina, without changing restrictions on direct land ownership.

A fall of more than 1% in Dubai and Abu Dhabi shares on Wednesday was a reaction to the possible Saudi regulatory changes, said Yasin.