The Saudi stock market was up four percent Wednesday on news that King Salman had named his powerful son as heir and that the exchange had moved closer to joining a major global index.

The Saudi Tadawul index, the largest in the Middle East, surged 4.12 percent in early afternoon trading after Salman ousted his nephew as crown prince and installed his son Mohammed bin Salman.

Trader confidence was also up after the Tadawul announced that global stock benchmark provider MSCI had added the exchange to its Emerging Market Index Watch List.

Saudi Arabia is the only major emerging economy not represented in the index.

The Watch List designation brings "anticipated MSCI Index inclusion now one step closer," Khalid al-Hussan, CEO of the Saudi bourse, said in the statement.

Tadawul and Saudi Arabia's Capital Market Authority, the regulator, have made a series of reforms as part of efforts by the kingdom to broaden its investment base and diversify the economy.

The Tadawul All-Shares Index, which has a capitalisation of about $400 billion, opened to direct investment by qualified foreigners for the first time in 2015.

In February it inaugurated a parallel market designed to boost the role of small and medium firms.

The MSCI's move "signals to international investors that the country's capital market has attained greater maturity in terms of efficiency, governance and regulatory framework," Tadawul chairwoman Sarah al-Suhaimi said in the statement.

Bloomberg News reported that calculations by HSBC Holdings Plc predicting the kingdom's shares could see inflows of around $9 billion next year if the MSCI grants emerging market classification.