RIYADH—Saudi Arabia’s foreign reserves dropped sharply in April as the kingdom kept its peg with the US dollar steady while transferring a chunk to its sovereign-wealth fund to bet on stocks beaten down by the coronavirus pandemic.

The kingdom’s reserves in recent years have hovered around the $500bn level, held by its central bank in mostly low-risk assets such as US Treasurys. The implied stability allowed officials to maintain the Saudi riyal’s peg to the dollar and demonstrate the kingdom’s financial strength as it raised billions in debt to help fund an ambitious spending plan.