Saudi Arabia's bourse fell on Monday as modest trading volumes indicated there were no big fund inflows from abroad on the first day that the market opened to direct foreign investment.

After rising as much as 0.5 per cent in the opening minutes, the main Saudi stock index closed 0.9 per cent lower as most blue chips in MSCI's provisional Saudi benchmark tumbled.

Saudi Basic Industries, the biggest petrochemicals firm in the kingdom, lost 1.5 per cent and top lender National Commercial Bank retreated by 1.1 per cent.

Only one foreign institution, HSBC, declared that it had obtained a licence to invest and traded shares on Monday, although stock exchange chief executive Adel al-Ghamdi told Reuters on Monday that regulators were processing six applications.

Previously, foreigners could only buy stocks in the $564 billion market, largest in the Arab world, indirectly through channels such as swaps. Riyadh is opening the market as a way to expose companies to market discipline and diversify its economy beyond oil.

Local retail investors, who dominate activity in the Saudi market, bid it up in anticipation of its opening to foreigners. The index is up 14.7 per cent year-to-date, outperforming all other Gulf markets.

But hopes for a quick flood of foreign money are likely to be disappointed. Many barriers to entry remain in place, such as a same-day settlement requirement and tight ceilings on foreign ownership of individual stocks and the overall market.

Also, Saudi Arabia's market is currently richly valued, trading at a forward price-to-earnings ratio of 16.8 times, well ahead of all other Gulf markets and roughly on a par with Britain's FTSE 100 and the U.S. S&P 500, which are valued at 16.1 and 17.3 times respectively.

Although Saudi Arabia's entry into international indexes could eventually attract tens of billions of dollars of additional foreign money, MSCI this month chose not to start a formal review to include the bourse in its emerging markets benchmark, saying it would monitor the market first. Even if it chooses later to fast-track the procedure, inclusion is very unlikely before mid-2017, analysts say.

"We harbour concerns that the market could correct downwards as fundamentals again come to the fore" after the run-up due to the opening to foreigners, Bank of America Merrill Lynch said in a report.

Other Gulf markets were mostly positive on Monday, led by Dubai, which climbed 0.5 per cent on speculative buying in the absence of major corporate news.

Amlak recovered from early losses and surged 15 per cent, its daily limit, after tumbling by 10 per cent for two sessions in a row. The stock, which had previously more than doubled within one week, accounted for a half of total traded value in Dubai on Monday.

The company resumed trading this month after a six-year suspension over debt issues which it has finally resolved. But analysts have described its rally as a momentum play and not based on fundamentals.

Two other names popular with retail investors, builder Arabtec and Union Properties, rose 1.9 and 2.4 per cent respectively.

Heavyweight Emaar Properties fell 1.1 per cent after it played down Polish media reports which said the firm planned large investments in the Eastern European country. Emaar said it regularly reviewed potential investment opportunities and would "inform the market as and when any such opportunity is finalised".

Abu Dhabi's bourse edged up 0.2 per cent and Qatar's benchmark added 0.4 per cent as most stocks on both markets rose.

Egypt's bourse slipped 0.2 per cent with most companies in the red. However, investment bank EFG Hermes rose 1.4 per cent after it launched a leasing business and the company's chief executive told Reuters he believed it was well capitalised for strong growth.-Reuters