Saudi Arabia’s capital markets have developed rapidly into a critical pillar of the Kingdom’s wide-ranging Vision 2030 agenda, driving economic diversification and reducing the country’s dependency on oil revenue, while drawing investment into the country. In recent years, thanks to a series of reforms and strategic initiatives, the Kingdom has successfully positioned itself as a key regional financial centre, attracting unprecedented levels of foreign investment and enhancing market sophistication.
Tadawul
At the heart of this transformation is the Saudi Exchange, known as the Tadawul, which has witnessed substantial growth in both market capitalisation and trading volumes since it was established in 2007, with growth accelerating in 2019. The Tadawul is one of the largest capital markets in the world, regularly ranking as one of the top-10 bourses in the world in terms of market capitalisation, with SR10.3trn ($2.7trn) on its books at the end of August 2024, up from SR9.9trn ($2.6trn) at the end of 2022 and SR1.8trn ($480bn) at the end of 2014.
The emergence of the Tadawul as one of the largest exchanges in the world has not only heightened the Kingdom’s international visibility as a growing global financial centre, but also boosted liquidity and trading activity on the exchange itself. For example, the exchange has become a focal point for a raft of high-profile initial public offerings (IPOs), including the December 2019 IPO of Aramco, the Kingdom’s national oil company and the world’s largest integrated oil and gas group, equal to 1.5% of the company’s value. This was followed by a further listing of 0.6% of Aramco’s shares in June 2024.
This momentum is not expected to let up anytime soon. As of late May 2024 more than 10 IPOs had been approved and were awaiting listing on the Tadawul, while more than 50 additional companies had reportedly filed applications to list on the exchange. These developments have been key in drawing foreign investors – who have been allowed to trade on the exchange since June 2015 – and have played an increasingly important role in the market.
Meanwhile, the sector’s regulatory landscape, supervised by the Capital Market Authority (CMA), has also undergone significant changes in recent years in support of this growth. The CMA has implemented a robust oversight and reporting framework aimed at fostering transparency, protecting investors and ensuring market stability, while supporting the market’s ongoing growth. Major initiatives enacted by the CMA over the course of the past decade include the establishment in 2017 of the Nomu – Parallel Market to support small and medium-sized enterprises (SMEs), the introduction of real estate investment trusts (REITs) to the exchange in 2016, and the rollout of a wide range of trading instruments and platforms to diversify investment options on an ongoing basis. These advances – underpinned by the Kingdom’s rapidly expanding real economy and strong investor appetites – are expected to drive growth in Saudi Arabia’s capital markets.
Structure & Oversight
While the Kingdom has been home to investment activities of various kinds since the 1950s, the sector went largely unregulated until 2003, when the government passed the Capital Markets Law in a bid to formalise and develop the sector. The law, which set out to bring the industry in line with international standards, established the CMA as the sector regulator, entrusting the new authority with a range of responsibilities and powers.
The CMA is charged with regulating and supervising the Kingdom’s securities market, including overseeing stock exchanges, brokerage firms and mutual funds. Its functions include enforcing securities laws, protecting investors and fostering market development to align with Vision 2030. The authority has also been instrumental in implementing reforms to attract foreign investment – such as the inclusion of Saudi stocks in major international indices like the MSCI Emerging Markets Index – and it emphasises corporate governance, ensuring listed companies adhere to disclosure and transparency standards.
In March 2021 the government transformed the exchange into a holding company known as the Saudi Tadawul Group (STG), which oversees four key components of the Kingdom’s capital markets architecture. These include the Tadawul itself, the Securities Clearing Centre Company (Muqassa), the Securities Depository Centre Company (Edaa) and Wamid, which serves as the group’s applied technology and innovation arm. These four separate entities work together to enhance market infrastructure, improve transparency, and attract both domestic and international investors, solidifying Saudi Arabia’s position as a leading financial centre in the region.
The STG has been proactive in promoting collaboration with regional and global markets. In an effort to strengthen ties between capital markets in the Gulf and East Asia, in May 2024 the group hosted its inaugural international Capital Markets Forum in Hong Kong. In June 2024 the STG purchased a 32.6% stake in the Dubai Mercantile Exchange, making it the joint largest shareholder in the exchange alongside the Chicago Mercantile Exchange. The exchange, which was rebranded as the Gulf Mercantile Exchange in September 2024, is well positioned to leverage its geographic proximity to key commodity production centres and markets for energy, metals and agricultural products.
Indices
The Tadawul All Share Index (TASI) is the main exchange’s benchmark index. It tracks the performance of all listed companies across various sectors in the Saudi market, providing a comprehensive measure of market activity. The MSCI Tadawul 30 Index (MT30) tracks the top-30 stocks by market capitalisation, providing exposure to the market’s most significant companies. Sub-indices offer opportunities to trade shares of sharia-compliant companies, derivatives tied to the MT30, companies that have listed in the past five years, and small-, medium- and large-capitalisation companies.
Established by the Tadawul in February 2017, the Nomu – Parallel Market is an alternative equity market. It is designed to offer SMEs a more accessible route to going public with fewer listing requirements compared to the main market. The Nomu – Parallel Market aims to enhance the financing options for these companies, allowing them to raise capital, expand their operations and increase visibility. The market is characterised by its less stringent regulatory framework, which includes lower thresholds for market capitalisation – SR10m ($2.7m) as compared to SR300m ($80m) – to list on the main market, lower shareholder numbers – at least 50, as compared to 200 on the Tadawul – and more adaptable financial reporting. This flexibility encourages a broader range of companies to participate, fostering innovation and entrepreneurship within the Kingdom. While the Nomu – Parallel Market is geared towards professional investors who are aware of the risks associated with investing in smaller companies, it also serves as a stepping stone for these companies to transition to the main market in the future.
Lastly, while the Tadawul has hosted a debt market since 2009, this segment of the exchange has grown significantly in the period since 2018, when the government listed a series of large-scale, Saudi riyal-denominated bond issuances to cover national accounts during a period of volatile oil prices. Since then, the Kingdom’s debt market, which is tracked by the Sukuk and Bonds Market Index, has grown into one of the largest in the region, reaching $360bn in 2023, according to data from Fitch Ratings.
Size & Performance
The Kingdom’s capital markets are large both on a regional basis and compared to other major exchanges around the world. At the beginning of October 2024 a total of 253 companies were listed on the Tadawul, up from 231 companies at the end of 2023 and 223 firms at the end of 2022. Total market capitalisation on the main exchange reached SR10.2trn ($2.7trn) as of the end of August 2024, compared to SR9.9trn ($2.6trn) at the end of 2022. Meanwhile, the combined value of sukuk (Islamic bonds) and conventional bonds listed on the exchange reached SR602bn ($160bn) at the end of June 2024, while the exchange reported average daily traded value of SR10.6bn ($2.8bn).
At the end of 2023 the TASI closed at 11,967.39 points, up 1488.93 points – or more than 14% – on 10,478.46 points at the end of the previous year. The total number of trades executed during the year – a reliable measure of market activity – reached 94m, up almost 7% from 87.9m in 2022. The total volume of shares traded during 2023 surpassed 83bn, down less than 1% from nearly 83.7bn the previous year.
Key Sectors
As might be expected in a country with such long-standing investment in oil and gas, the energy sector continues to make up the largest proportion of the Tadawul, accounting for nearly 72% of the total value of listed shares on the exchange by market capitalisation as of the end of 2023. Indeed, Aramco – which has floated less than 3% of its overall value on the Tadawul since its initial listing in December 2019 – accounted for 71% of the total value of the main market in the same period. The firm’s dominance on the exchange is a reflection not only of a strong appetite both within the Kingdom and further afield for energy stocks, but also of Saudi Arabia’s recent management of the world’s largest oil producer, which is in the process of transitioning to renewables (see Energy chapter).
Banks were the second-largest segment on the Tadawul by market capitalisation at the end of 2023, with 7.8% of the total, followed by the materials segment, with 6.2%; the consumer discretionary distribution and retail segment, with 3.7%; the utilities segment, with 2.6%; and the telecommunications segment, with 2.3%, according to data reported by the exchange. Trading activity for the year centred on the materials group, the banks group, the insurance group, the consumer services group and the energy group. The most traded companies in 2023 included Al Rajhi Bank – the world’s largest Islamic bank by assets – Aramco, Saudi Telecom Company, Saudi National Bank, the Al Baha Investment and Development Company, the Tourism Enterprises Company and Americana Restaurants.
Regulatory Developments
The CMA, in collaboration with the Tadawul and other key players, has released a number of updated guidelines and regulations in 2024, with the aim of further strengthening the sector and protecting investors. In June 2024 the exchange published much-anticipated rules for managing dual listings on the exchange. Dual listings have been a feature of the sector since December 2022, when the Kuwait-based Americana Restaurants group cross-listed $1.8bn in company shares on the Tadawul and the Abu Dhabi Securities Exchange. The new guidelines, which specify various criteria non-Saudi companies must meet to list shares on the Tadawul – such as minimum market capitalisation, auditor selection and local regulatory compliance requirements – mark a significant step forward in terms of clarifying the regulations around dual listings and providing a clear, step-by-step path to floating shares in the Kingdom for foreign firms. The CMA and the Tadawul are both committed to growing the number of foreign firms cross-listed on the Saudi Exchange, which they see as advancing the Kingdom’s global financial integration.
Dual Listings
The new dual-listing framework follows on from a series of regulatory advances. In March 2023 the CMA issued new rules governing foreign investment in securities, which had the effect of consolidating extant provisions into a single document and reducing the barriers to entry for foreign investors, thus making the market more accessible to non-Saudi shareholders (see analysis). At the end of 2022 an updated Companies Law came into effect, which applies to all firms operating in the Kingdom, covering such basic rules as standards of care for corporate directors, distribution of dividends and shareholder disputes. The update, which replaces the previous iteration of the law dating to 2015, was designed to bring Saudi Arabia’s corporate legal framework in line with international best practices.
Additional recent regulatory advances enacted by the CMA have impacted the Kingdom’s Real Estate Contributions Law, and debt and sukuk instruments – the latter of which, in particular, are a major point of focus for the regulator moving forward. In December 2023 the CMA, in conjunction with the Saudi Central Bank (SAMA), launched the Makken programme, a new financial technology (fintech) initiative designed to stimulate digitalisation and technical innovation across the financial services industry. The project represents the most recent initiative put forward by Fintech Saudi, a public partnership between SAMA and the CMA that initially launched in April 2018.
Ipos
The Tadawul has experienced a surge in IPO activity since 2021, drawing attention from both domestic and international investors, and underscoring Saudi Arabia’s growing prominence. Demand has been driven by both retail and institutional investors, and growing appetites among private sector companies in the Kingdom to raise capital.
According to Bloomberg, between the end of May 2022 and the end of May 2024 some 61 companies went public in the Kingdom. More than half of these listings ended their first day of trading up on their offer price, while 17 stocks rose by the maximum allowed 30% on their first day of trading. The average return overall has been 32%, as compared to returns of roughly 5.2% among newly listed companies that raised more than $100m in Europe. Meanwhile, between 2021 and February 2024 the Tadawul recorded more than 120 listings in total, which raised more than $100bn for the listing firms.
Major IPOs on the Tadawul in 2024 included Dr Soliman Abdul Kader Fakeeh Hospital’s May 2024 IPO, which institutional investors covered 119 times, raising about $763m in total orders. Other major listings in the second quarter of 2024 included the Saudi Manpower Solutions Company, which raised $240m, and fintech provider Rasan Information Technology Company, which raised $224m. Earlier in the year, major floats included the Modern Mills Company’s $724m listing, and new listings by the MBC Group and the Middle East Pharmaceutical Industries Company.
In October 2023 the oil and gas drilling company ADES Holding raised some $1.2bn in a much-anticipated listing. The company, which is partially owned by the Public Investment Fund (PIF), the Kingdom’s sovereign wealth fund, operates a fleet of onshore and offshore drilling rigs and other energy infrastructure across the GCC, North Africa and India. This IPO was significant not only for its size, but also because it highlighted the continued strategic importance of Saudi Arabia’s energy sector. The offering attracted interest from international investors, reflecting confidence in the Kingdom’s economic stability and the demand for energy-related assets.
Smes & Reits
The Nomu – Parallel Market has also seen considerable growth in new listings in recent years, with 27 IPOs in 2023 alone, as compared to eight new flotations on TASI during the same period. By the end of 2023 the market had a total market capitalisation of SR48.3bn ($12.9bn), up from SR35.1bn ($9.4bn) at the end of 2022, and more than double the figure of SR19bn ($5bn) at the end of 2021. Indeed, activity on the Nomu – Parallel Market has boomed in recent years. Whereas from its founding in 2017 through 2021 the exchange added just a few companies every year, between 2021 and the end of 2023 it saw listings rise from 14 to 79. Activity has been concentrated in a number of key sectors since 2017, including basic materials, capital goods, health care, and technology applications and services, though food production and consumer services are also well represented on the index.
A major benefit of listing on the Nomu – Parallel Market is that the exchange can serve as a gateway to entering the main market. For example, in 2019 five firms made the jump from the Nomu – Parallel Market to the Tadawul. In July 2024 Jahez International – which, with a market cap of SR5.5bn ($1.5bn), is one of the largest firms listed on the parallel market – put in an application to transfer to the main market. Other major listings by market capitalisation listed on the Nomu – Parallel Market include the Future Care Trading Company, at SR6.5bn ($1.7bn); the National Building and Marketing Company, at SR2.6bn ($690m); and the Armah Sports Company, at SR2.3bn ($610m). Meanwhile, REITs, the first of which launched in the Kingdom in 2016, have faced headwinds in recent years, apparently due to waning investor interest and competition from other sources of portfolio diversification. As of May 2024 there were 18 REITs listed on the Tadawul with a combined capitalisation of SR16.5bn ($4.4bn).
Debt Market
Beyond IPOs, in recent years an increasing number of companies, both listed and unlisted, have looked to the Tadawul’s burgeoning debt market to raise capital. By the end of 2023 the value of the Kingdom’s bond and sukuk market in all currencies reached $360bn, according to Fitch, which forecast continued growth up to $500bn by 2027. Meanwhile, the debt market has posted annual growth of 7.9% every year since 2019, according to the CMA, with growth concentrated in unlisted issuances, which expanded at an annual rate of 9.6% over the same period. The total number of companies issuing debt on the Tadawul, meanwhile, has tripled since 2019, reaching 70 at the end of 2023. The market posted considerable growth in terms of the total value of trades and the number of executed transactions, both of which are key measures of market liquidity. The trade value of debt instruments on the market reached SR2.5bn ($667m) in 2023, as compared to SR800m ($210m) in 2019.
In 2023 the CMA launched its debt instruments market development strategy to further develop the Kingdom’s debt markets for Islamic and conventional issuances alike. The strategy includes a raft of some 35 strategic initiatives between 2023 and 2025, all of which are aimed at enhancing debt market accessibility by simplifying the regulatory framework around debt issuance. For example, one initiative is expected to allow local financial institutions to issue private debt instruments under a number of exemptions, including modified timelines for notifying the CMA, to expedite the issuance process.
While the reforms are still in the development phase, they may have already buoyed the market, with institutional investors reportedly expressing broad support for the proposed changes. Indeed, the share of individual debt market investors increased from around 1% at the end of 2021 to around 12.5% by the end of 2023. Over the same period, the share of banks buying into the debt market decreased from 60 in 2021 to around 48% at the end of 2023, while the share of government entities fell from 20% to 13%, and the share of investment funds increased from 12% to 15%. These figures reflect the diversification of the investor base, as more individual and professional institutional investors look to the debt market to fill out and balance their financial holdings.
Mergers & Acquisitions
Although mergers and acquisitions (M&A) activity was generally down around the world in 2023 on previous years, the Kingdom and other GCC markets have proved resilient. Saudi Arabia saw 99 M&A deals in 2023, down from 114 in 2022, but up from 92 in 2021, according to PwC. By comparison, the rest of the region outside of Egypt, Saudi Arabia and the UAE saw M&A deals rise from 65 in 2022 to 66 in 2023, still well below the 92 deals recorded in 2021.
The Kingdom was home to three of the five largest non-oil sector M&A transactions in the Middle East in 2023. Moreover, two of these deals involved the PIF, which reflects the continued importance of the public sector as a driver of dealmaking in the Kingdom and across the region. In January 2023 a PIF-led consortium of investors bought an 80% stake in Zain Saudi Arabia, the Kingdom’s second-largest telecommunications service provider, in a deal worth $807m. The following month the PIF acquired a minority stake in four local construction companies – Nesma & Partners Contracting, Almabani General Contractors, El Seif Engineering Contracting and Al Balwani Holding – for around $1.3bn in total, making it the largest single acquisition of the year across the region. Lastly, in December 2023 Riyadh-based asset management company SNB Capital acquired a 20% stake in Tamara, a buy now/pay later firm, for $340m.
The M&A rally in Saudi Arabia continued into 2024, even as global activity slowed during the same period as a result of the high cost of capital. The Kingdom reported some $955m in M&A activity during the first quarter of the year, due in large part to some $500m worth of deals in the chemicals sector, led by major local players such as Aramco and other oil industry firms. This follows Aramco’s acquisition of Valvoline’s global products business for $2.7bn in May 2023, which was widely understood as a bid by the oil major to integrate Valvoline’s manufacturing, distribution, and research and development activities into Aramco’s lubricants portfolio.
Outlook
The growth of Saudi Arabia’s capital markets in recent years has been underpinned by increased IPO activity, strategic mergers, careful regulatory planning and growing interest from global investors (see analysis). Strong investor appetite for sectors like fintech, health care and real estate reflect the market’s broadening scope. Regulatory improvements put in place by the CMA have enhanced transparency and investor confidence, positioning the Tadawul, the Nomu – Parallel Market and Saudi Arabia’s growing debt markets as key financial resources in a dynamic region. The focused development of both equity and debt markets sets a strong foundation for sustained economic growth and integration into the global financial system. As the Kingdom continues to reform its financial infrastructure, its capital markets are expected to play a key role in driving economic growth, attracting foreign direct investment and contributing to achieving the ambitious objectives of Vision 2030.
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