Saudi Arabia’s stock market has been one of the worst performing in the world this year as a sliding oil price, ballooning government debt sales and a string of listings flops have cast a shadow over what was previously a bright spot on global markets.
The failure of new listings to match the stellar performance of debuts in 2023 and 2024, in particular, has raised doubts about the kingdom’s attempts to promote its plans for economic diversification to international investors.
Riyadh has been trying to rein in spending following a decade-long splurge as it sought to wean the Saudi economy off its reliance on oil. But while debt-fuelled spending on mega-projects such as the futuristic Neom have helped to boost growth, investors are worried that the pullback may hurt the economy.
“There are rising concerns over Saudi’s ability to cope with a lower oil price environment,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Other factors were also at play, she added, including “tight liquidity in the banking sector”, with banks tapped out by lending to the government.
Saudi companies have raised more than $2.8bn in stock market listings so far this year, a faster pace than in 2024, despite a more than 9 per cent drop in the benchmark Tadawul All-Share Index.
But newly floated Saudi stocks have gained only 4 per cent on average in their first month of trading, versus 27 per cent in 2024, with large falls for key initial public offerings, according to Dealogic.
Among the losers are packaging company United Carton Industries, whose shares have fallen 35 per cent since floating in late May. Budget carrier Flynas has lost 8 per cent since going public in June. Gym company Sport Clubs Co seems to have bucked the trend, with its shares up 10 per cent since it listed on July 25.
This year’s fall in the Tadawul is in sharp contrast with exchanges in Kuwait and Dubai, where the main indices are up 17 per cent and 20 per cent, respectively.
Out of more than 90 stock markets worldwide, only those of Jamaica, Denmark, Lebanon and Argentina have fallen more in US dollar percentage terms this year than the bourse of the Middle East’s largest economy.
Saudi companies make up five of the 10 worst performers in MSCI’s benchmark gauge of more than 1,200 emerging market stocks.
Lacklustre performance is hitting the exchange. On Sunday, bourse operator Saudi Tadawul Group said its first six month operating revenues had fallen 13 per cent year-on-year to 647.1mn riyals ($172.6mn), because average daily trading values were down by a third over the same period.
“There is no problem with the IPO pipeline, and the regulators are keen,” said Mohammed al-Suwayed, chief executive of Riyadh-based Razeen Capital.
But investors worried, he added, that low oil prices could push the government to abandon the expansionary policy it has pursued in recent years under its economic diversification programme and revert to the old habit of cutting spending.
“The problem is in this uncertainty: is Saudi Arabia going to change how they respond to oil slumps or not?”
Saudi Arabia’s stock market is skewed towards banks, oil companies and petrochemicals groups, traditional sectors that are particularly vulnerable to oil prices and economic conditions.
The composition of the main index “presents a fundamental challenge to investors seeking exposure to Saudi Arabia’s economic transformation story”, said Tarek Fadlallah, chief executive of Nomura Asset Management Middle East.
Investors are betting that the bourse will be weighed down by Saudi Arabia’s surge in borrowing to make up for lower crude prices, which threatens to raise funding costs for banks and companies.
Economic growth had been supercharged by the government’s ambitious diversification plans. But with costs ballooning and oil prices low, the kingdom is “taking stock” of its spending priorities, Saudi Arabia’s finance minister has said.
The value of new projects awarded in the first half of 2025 tumbled 60 per cent from a year earlier, according to research firm ADCB and MEED Projects. The value of projects awarded in the second quarter of this year was the lowest for any quarter since 2021.
Plugging the gap left by oil prices, Saudi Arabia has leaned heavily on international capital markets. It was the biggest sovereign issuer of external bonds in emerging markets in 2024 and could be again this year, adding to a dollar debt stock that has grown rapidly in half a decade.
Saudi 30-year bonds trade at a yield of about 6 per cent, only about a percentage point more than equivalent US Treasuries. But some funds are betting that the kingdom will have to pay up for international buyers to absorb more debt if oil prices continue to languish.
“There will be more and more [oil] supply from Saudi Arabia and the rest of OPEC+ coming on to markets,” said Dan Worth, a partner at Broad Reach, an emerging markets hedge fund. “We feel that Saudi debt is mispriced. We think that there is eventually going to be indigestion.”
The kingdom is still a long way from debt stress. At the end of 2024, its central bank had net foreign assets of $415bn, while Saudi Arabia’s debt is among the lowest as a share of GDP worldwide.
But a longtime current account surplus vanished last year and Saudi Arabia will be in deficit for the rest of this decade, the IMF said last month, as the kingdom increasingly finances itself with foreign capital in place of oil income.
Meanwhile, net foreign assets of Saudi banks, key buyers of government bonds, turned negative last year for the first time since 1993 as they borrowed more from abroad to fund lending at home.
“That liquidity squeeze and net selling from domestic investors is driving the ongoing derating of the [Saudi] stock market,” said JPMorgan analysts in a recent note.
