Price: Concept, Influencing Factors, and Its Role in the Saudi Market

In the Saudi financial market (Tadawul), price is defined as the monetary value at which a sale or purchase transaction of a financial instrument, such as stocks or bonds, is executed at a specific moment. Simply put, the price is the number agreed upon by the seller and buyer to complete the transaction. This price is recorded immediately and displayed publicly on trading screens and electronic platforms. Stock prices vary from one company to another based on their size and the strength of demand and supply, ranging from a few riyals to hundreds of riyals. The price serves as an immediate indicator of confidence in the stock and the company's performance in the market. It is noteworthy that all prices in Tadawul are quoted in Saudi riyals, adding a unique dimension due to the currency's connection to the oil economy and the monetary policies of the Kingdom.

Stock prices in Tadawul are determined through a public auction system, where buyers submit purchase offers, and sellers present selling prices. When demand meets supply at a specific price, the transaction is executed, and the new price is recorded as the latest price for the stock. Prices change with each new transaction, reflecting the market's dynamism. Additionally, there are daily price change limits imposed by the Capital Market Authority to prevent violent fluctuations and protect market stability. Prices are updated instantaneously and are available to investors through official electronic portals. Pre-opening and closing sessions also play a crucial role in determining daily opening and closing prices, which many investors rely on for analysis.

Supply and demand are the two main elements that determine price movement in any financial market, including Tadawul. If demand for a particular stock increases (i.e., the number of buyers rises), the price will rise due to competition among them. Conversely, if supply increases (i.e., many investors attempt to sell), the price will decrease. Supply and demand levels are influenced by several factors, such as company news, financial results, global market movements, as well as investor expectations and trends. In the Saudi market, the impact of economic and political news is clearly evident on supply and demand levels, especially in sensitive sectors such as energy and banking.

Stock prices are affected by several interrelated factors, including internal factors related to the company's performance (such as profits and distributions, and growth rates), and external factors such as oil prices, changes in interest rates, government policies, geopolitical events, and market liquidity levels. For example, an increase in the company's profits or the announcement of generous cash distributions may lead to a price increase, while negative news or declining profits may drive the price down. Additionally, stock prices in Saudi Arabia are significantly influenced by global oil price movements due to their direct impact on the national economy.

Comprehensive indicators such as the Tadawul All Share Index (TASI) play a vital role in measuring the price performance of the market as a whole. The TASI is calculated based on the market capitalization weighted of listed companies' stocks, meaning that companies with larger market capitalizations have a greater impact on the index. If the stock prices of major companies like Aramco or SABIC rise, this directly reflects on the overall index. Indicators assist investors in tracking market trends and understanding the overall investment mood, and they are used as a reference for comparing the performance of individual stocks against the market.

Although the stock price is an important indicator, it differs from market capitalization, which represents the total value of the company in the market (stock price multiplied by the number of issued shares). There are also other key indicators, such as the Price-to-Earnings (P/E) Ratio, which is the result of dividing the stock price by the annual earnings per share, and is used as a measure of how "expensive" or "cheap" the stock is compared to its earnings. Additionally, the Dividend Yield is calculated by dividing annual distributions by the stock price. All these indicators are used to understand the current price in its broader context and assess its attractiveness to investors.

The Saudi financial market imposes daily price fluctuation limits, usually a certain percentage up or down from the previous closing price, to protect the market from sharp and unjustified fluctuations. These limits help mitigate panic or sudden speculation and give investors ample time to absorb news or impactful events. They also enable the authority to intervene when unusual fluctuations occur. The effect of these limits is particularly evident on days when important news or unexpected financial results are announced.

Quarterly business results play a direct role in determining stock price, as they reflect the company's financial health. Announcing profits that exceed expectations often leads to a rise in stock price, while results that fall short of expectations can lead to a price decline. Investors closely monitor earnings and revenue data, operating margins, cash flows, and management's forecasts for upcoming periods. In the Saudi market, companies announce their quarterly results, and these reports are widely analyzed by investors and financial analysts.

Economic and political developments are powerful factors influencing stock prices in the Saudi market. Decisions such as changes in interest rates by the central bank, or policies supporting vital sectors under Vision 2030, or announcements about opening the market to foreign investors, all affect liquidity levels and market confidence, reflecting on prices. Additionally, global oil prices and regional geopolitical events impact sectors such as energy and banking. Those following local and global economic news will find a close correlation between these events and price movements in Tadawul.

Liquidity and trading volume are fundamental indicators of market activity and have a direct impact on price. High liquidity and trading volume indicate strong interest in a stock or the market in general, often accompanied by clear price movements. In the Saudi market, recent years have seen a noticeable increase in daily trading volume, especially with the entry of new investors and the listing of companies in growing sectors such as technology and renewable energy. High liquidity reduces price volatility and allows for easy execution of buy and sell orders.

The impact of factors on price varies depending on the economic sector to which the company belongs. For instance, energy companies are affected by oil prices and OPEC policies, while technology companies are influenced by the pace of digital transformation and investment in innovation. In the Saudi market, key sectors include energy, banking, telecommunications, industry, real estate, and infrastructure. Stock prices of companies within the same sector often move closely together in response to common influencing factors, and investors use comparisons of performance and price of each stock against its peers within the sector to assess attractiveness.

In recent years, the Saudi market has made significant strides toward opening up to foreign investors, the latest of which includes consultations by the Capital Market Authority to facilitate foreign ownership of listed shares without previous restrictions. This opening has increased liquidity and attracted international capital to the market, enhancing competition and transparency. Such developments typically lead to rising stock prices, especially in companies with global appeal, and bolster the Saudi market's position as the largest financial market in the region.

To obtain accurate information about prices, investors rely on the Saudi Tadawul electronic portal, where stock prices are available in real-time, along with company lists and quarterly reports. Platforms like Argaam provide detailed analyses and financial data, while the Capital Market Authority issues official reports on regulatory policies and market performance. Following local and global economic news through reliable news agencies, and using investment banking applications, are essential tools for effectively monitoring and analyzing price movements.

Financial analysis relies on studying key performance indicators such as the P/E ratio, dividend yield, revenue growth, and operating margin. By comparing these indicators among companies within the same sector, investors can assess the "attractiveness" of the current stock price. Additionally, using quarterly and annual data helps understand growth trends and anticipate the company's future performance. It is also important to monitor special events such as acquisition announcements or stock buybacks, as they have a direct impact on price.