Saudi Arabia has taken several reforms and market infrastructure investments over the past decade to grow its capital markets, including Tadawul, and these reforms are crucial to further advance its Vision 2030 goal of increasing its economic, social and cultural diversification.
The success of these reforms is evident in the stock exchange Tadawul’s inclusion in major emerging market equity indices in 2019, and the growth of its market capitalization by 463 percent over the past decade.
In its most recent report, S&P Global noted that in terms of market capitalization, the market is still dominated by a relatively small number of government-related entities, and market liquidity remains relatively low, albeit recording the highest levels in the GCC region.
Foreign investors’ holdings on Tadawul continue to rise but remain low at about 4.2 percent of the market or about 11 percent of the free float as of year-end 2024.
Equity markets to play larger role as Vision 2030 funding needs increase
Tadawul will play a larger role in Saudi Arabia’s economic transformation in the coming years, said S&P Global. Equity markets will allow the Saudi economy to diversify sources of funding for the Vision 2030 program. As the implementation of Vision 2030 speeds up, even with the recalibration of some projects, funding needs are significant: giga- and mega-projects are estimated to cost more than $1 trillion. Therefore, Vision 2030 projects will require raising funds across several sectors. Â
“We project that the central government and the Public Investment Fund (PIF) will raise new debt of about $60 billion or 4.9 percent of GDP annually over 2025-2028. The government is also actively promoting investments from large corporates, especially GREs, aiming to channel approximately $1.3 trillion into various sectors through the “Shareek” (partner) program,” added the report.
The agency also expects total external debt in Saudi Arabia to increase to about 45 percent of GDP, from 29 percent in 2023. It also forecasts robust credit growth for banks of about 10 percent, driven primarily by corporate lending linked to Vision 2030.
“However, these will likely be insufficient to meet all the funding requirements. Growth in equity markets will enable companies and financial institutions to allocate more capital toward investments while managing leverage. Foreign direct investment inflows have been slow to pick up, and remain below 2 percent of GDP,” added S&P.
Tadawul ranks among largest emerging market exchanges
Tadawul’s market capitalization increased 463 percent to about $2.7 trillion in 2024, from about $483 billion at year-end 2014. One of the key milestones was the IPO of the state-owned national oil company, Saudi Aramco, in 2019, which raised $29.4 billion, significantly elevating Tadawul’s market capitalization and global standing.
“Even if we exclude Aramco’s year-end value of $1.8 trillion, Tadawul’s capitalization was still up by about $427 billion,” the report added.
S&P also noted that there is a major push to get Saudi companies listed. Between 2014 and 2024, Tadawul’s main market hosted 91 IPOs for an aggregate offering value of about $65 billion, even excluding other listings such as Aramco’s secondary offering of about $11.2 billion in July 2024. As a result, the number of listed issuers on Tadawul’s main market grew to 247 by year-end 2024 from 169 in 2014.
Tadawul now ranks as one of the largest exchanges among emerging markets, in terms of its market capitalization. It is also the largest emerging equity market outside Asia.
As the Saudi Arabian government rolls out its Vision 2030 program and international investors enter the market, S&P anticipates a rise in trading activity. This should bode well for Tadawul and the country as a more liquid equity market allows shareholders to monetize their holdings and raise liquidity. A market with a well-diversified number of sectors also creates avenues for investment in the local economy, supporting long-term economic growth.
