Tadawul is included in the FTSE Global Equity Index after it had been on the watch-list since September 2015
The Saudi stock market dipped on Thursday, despite news the kingdom had been granted secondary emerging market status by the global FTSE Russel index.
The status is one Riyadh has long sought in order to attract needed foreign investment, as the kingdom seeks to diversify its oil-dependent economy.
After rising one percent at the start of trading, Saudi Arabia's Tadawul All-Shares Index slipped into negative territory one hour after the opening.
Tadawul welcomed in a statement Thursday the announcement made by FTSE Russell to include it in the FTSE Global Equity Index after it has been on the watch-list since September 2015.
The actual procedures of joining will start in March 2019.
Tadawul, the largest Arab bourse with a capitalisation of over $460 billion, joins the stock markets of Qatar and UAE which have been accorded the status in 2014.
"FTSE’s announcement today is significant for Tadawul in that it indicates growing investor confidence in the Saudi capital market and recognition that we are among the largest and most liquid emerging markets in the world," Tadawul CEO Khalid Al Hussan said.
Gaurav Shah, CEO of Saudi Al Rajhi Capital described the decision as "a watershed moment for the Kingdom".
"The decision will further improve liquidity, lower equity risk premium associated with the Saudi stock market, improve corporate governance and is an important step to further institutionalise the market," Shah said.
The decision was taken following a series of stock market reforms by Tadawul and its regulator Saudi Capital Market Authority to make it easier for foreigners to invest.
In 2015, it introduced the qualified foreign investor programme allowing large international institutions to invest on the market.
Since then, 120 international financial institutions have joined Tadawul and 180 others are in the process of joining, Tadawul said.
London-based Capital Economics said there are hopes that the upgrade by FTSE Russel would be followed later this year by a similar measure by the larger MSCI Index.
It estimated that the FTSE upgrade could attract some $5 billion of foreign investments and the expected MSCI decision may bring around $38 billion into the Saudi bourse.
Saudi authorities say they plan to sell up to five percent of oil giant Aramco within the next 12 months.
A portion of those shares will be listed domestically, and allowing foreign funds into the Saudi stock market will facilitate the sale of the planned IPO.