The stars are aligning for Saudi Arabia's stock market, according to a Credit Suisse analyst.
The country's economic transformation is lifting prospects, higher oil prices are enriching government coffers — and its inclusion into global benchmarks will bring in more foreign money, said Krithika Subramanian, a research analyst at Credit Suisse Private Banking.
All of that mean that markets in Saudi Arabia are in for a rally, even after a 15 percent rise year-to-date and with some stocks already looking expensive, she said
"Despite the fact that it is a bit expensive at this moment, we see that there is significant rally that's still left," she told CNBC's "Capital Connection" on Wednesday.
The Saudi stock market is set to join FTSE Russell's emerging market index in March 2019. The MSCI, which also tracks emerging markets, is expected to make a similar announcement in June, Subramanian noted.
In the past, markets that have joined those benchmarks rallied ahead of their inclusion, and the same is likely to happen in Saudi Arabia, she said.
"We would see, with the FTSE and the MSCI inclusion, almost $15 billion of foreign inflows coming into Saudi Arabia," she said.
The economic environment is also turning in favor of the Middle Eastern country, Subramanian said, with the current higher oil prices giving the government more leg room to increase spending and boost growth.
And with higher interest rates on the horizon, Saudi banks will see profitability improve too, she noted, adding that the petrochemical industry and banking stocks are preferred picks.
Crude oil, which has climbed in recent weeks on fears of tightening supply, may fall from current levels in the coming months — which could hurt the Saudi economy, the analyst said. But Saudi efforts to move away from reliance on oil would help the country build credibility among foreign investors, she added.
Riyadh on Monday said it hopes to bring in up to $11 billion in non-oil revenue between now and 2020 by privatizing state-owned companies. That would create 12,000 jobs in the economy too, the government claims.
Subramanian said the plan could kick off public offerings in the country, which may in turn attract foreign investors.
"Until now, the markets are under-penetrated by foreign participants," she said, adding that Saudi Arabia's reforms are "going to be one major, big push."
— Reuters contributed to this report.