Stock Exchange: Everything You Need to Know About the Saudi Market

The stock exchange is an organized market for trading securities such as stocks, bonds, sukuk, and investment funds. In Saudi Arabia, the stock exchange is referred to as "Tadawul" or Saudi Exchange, which represents the main infrastructure for the financial sector. The stock exchange plays a pivotal role in aggregating savings from individuals and institutions and transforming them into productive investments, contributing to financing economic projects and expanding the activities of listed companies. The stock exchange allows companies to increase capital by offering their shares for public subscription while providing investors with a platform to trade financial assets easily and transparently. It also helps in pricing stocks fairly through supply and demand forces and supports financial stability by monitoring disclosure processes and adhering to governance standards. From an economic perspective, the stock exchange is one of the most important tools for directing resources towards the most productive sectors and contributes to GDP growth and job creation.

The Saudi stock exchange began as an informal platform for trading stocks in the mid-20th century and gradually evolved into an officially regulated market. The Capital Market Authority (CMA) was established in 2003, and the Saudi financial market was launched as "Tadawul" to be the sole licensed entity for trading securities in the Kingdom. The Saudi stock exchange has witnessed many stages of development, such as the introduction of electronic trading systems, the development of new financial products like exchange-traded funds and bonds, and the expansion of the investor base to include foreign investors since 2015. Tadawul also launched parallel markets like the Nomu market to support small and medium-sized enterprises. Today, the Tadawul exchange is considered one of the largest regional markets in terms of market capitalization and the number of listed companies, and it is continuously subject to regulatory reviews to improve efficiency and transparency.

The Tadawul exchange is supervised by the Capital Market Authority (CMA), which sets rules and regulations to ensure transparency and integrity. The CMA is responsible for issuing licenses to brokerage firms, monitoring financial disclosures, and ensuring that listed companies comply with governance standards. The Tadawul market follows a strict system for listing companies, where companies must disclose their financial data periodically and adhere to disclosure and transparency standards. Additionally, an advanced technical infrastructure has been developed to support electronic trading and manage market operations efficiently. The system defines official trading times and provides mechanisms for transaction settlement and protecting investors' rights. Tadawul also collaborates with international entities to ensure that the market aligns with global standards, enhancing the exchange's attractiveness to local and international investors.

The Saudi stock exchange offers a variety of financial instruments, including:
- Stocks: Representing shares in the capital of listed companies.
- Sukuk and bonds: Debt instruments issued by the government or companies to raise financing.
- Real Estate Investment Trusts (REITs): Allowing investment in income-generating properties.
- Exchange-Traded Funds (ETFs): Representing baskets of stocks or bonds.
- Derivative instruments (such as futures contracts): Recently introduced to provide additional hedging options.
These instruments allow investors to diversify their portfolios according to risk levels and expected returns, all of which are subject to close monitoring and supervision by the Capital Market Authority to ensure transparency and protect investors' rights.

The Tadawul exchange uses a set of indicators to measure market performance, the most important of which are:
- The Main Market Index (TASI): Reflecting the performance of all companies listed in the main market.
- MSCI Tadawul 30 Index: Including the largest 30 companies by market capitalization and liquidity.
- Market Sector Indices (Large Cap, Mid Cap, Small Cap): Measuring company performance based on size.
- IPO Index: Tracking the performance of newly listed stocks.
These indicators help investors track market movements and choose effective diversification strategies. For example, TASI reached approximately 10,920 points in mid-2024, while the MSCI Tadawul 30 Index recorded a value of 1,409.74 points, reflecting the variation in performance among different sectors and companies. The indicators also provide historical data for trend analysis and risk assessment.

The Tadawul exchange is characterized by a large market size and high liquidity compared to regional markets. By 2024, the total market capitalization of the Saudi market exceeded 9 trillion Saudi riyals, led by major companies like Aramco, which represents over 7 trillion riyals of this value. The main market includes approximately 225 listed companies across various sectors such as energy, banking, chemicals, telecommunications, and retail. The parallel market (Nomu) targets small and medium-sized enterprises and includes dozens of emerging companies. The number of registered investors exceeds millions, and daily trading data shows average daily trades in the tens of billions of riyals, reflecting the market's depth and ongoing activity.

Several key sectors significantly influence the indicators of the Saudi market, the most prominent of which are:
- The energy sector (oil and petrochemicals): Led by Aramco and SABIC.
- The banking sector: Including banks like Al-Rajhi, National, and Saudi French.
- The telecommunications sector: Companies like Saudi Telecom (STC).
- The retail, industrial, and financial services sectors.
These sectors have high weights in the main indices, and thus the performance of their major companies often determines the general market direction. For example, a decline in oil prices often leads to a drop in market indices due to its impact on the profits of energy companies, while financial stability supports the growth of the banking sector. Therefore, investors are keen to monitor the results of major companies and sector reports regularly.

The Tadawul exchange occupies a leading position in the Middle East in terms of market capitalization and the number of listed companies, but it faces competition from regional exchanges such as Dubai Financial Market (DFM), Abu Dhabi (ADX), Qatar, Bahrain, and Muscat. These exchanges offer alternative investment options for Gulf and international investors. Globally, the Saudi stock exchange competes with markets like the New York and London exchanges in attracting foreign investments, as the Kingdom seeks to improve the investment environment and develop new financial products to ensure its continued attractiveness. Nevertheless, the Saudi market remains the largest in the region due to its size, depth, and diversity of sectors.

The Saudi stock exchange has witnessed numerous developments in 2024-2025, including:
- Launching new financial products such as Saudi International Deposits (SDRs) to attract foreign companies.
- Regulatory amendments to improve efficiency, such as changing the tick size to enhance liquidity.
- Expanding the base of foreign investors and providing additional investment tools.
- Increasing the activity of initial public offerings and listing new companies in both the main and parallel markets.
- Tightening disclosure and governance standards, with increased focus on environmental sustainability (ESG).
- Developing technical infrastructure and adopting electronic trading and blockchain solutions.
These initiatives have contributed to enhancing transparency, increasing liquidity, and attracting new segments of investors.

Individuals and institutions can invest in the Tadawul exchange through the following steps:
1. Open an investment account with a licensed brokerage firm or through one of the local banks.
2. Deposit a financial amount into the account.
3. Use the electronic trading platform to buy and sell stocks or other financial instruments.
4. Monitor disclosure reports and financial data of listed companies.
Advanced electronic trading platforms are available that allow for real-time execution of buy and sell orders, with the ability to track prices and indicators. It is also advisable to regularly review reports from the Capital Market Authority and specialized websites to keep up with regulatory and technical updates in the market.

The process of evaluating stocks on the Tadawul exchange relies on important financial indicators, the most notable of which are:
- Price-to-Earnings Ratio (P/E): Calculated by dividing the market price of the stock by its annual earnings per share.
- Dividend Yield: The ratio of annual dividends to the stock price.
- Revenue Growth Rate: Measures the development of the company's sales over quarters and years.
Tadawul allows the publication of these indicators for each stock, and their use helps investors analyze stocks based on financial performance and growth expectations. These indicators also provide comparative benchmarks between different companies and sectors, with the necessity of considering market and economic risks when using these tools.

Investing in the Tadawul exchange carries various risks, including:
- Price volatility risks due to economic or geopolitical changes.
- Liquidity risks, especially in small-cap stocks.
- Legislative and regulatory risks that may affect market procedures.
- Sector-related risks such as fluctuations in oil prices or changes in monetary policies.
It is advisable to diversify investments and use risk management tools such as stop-loss orders, and to continuously review financial reports and analyze trends. It is also preferable to familiarize oneself with investment products well before making any financial decisions.

The Saudi stock exchange has seen significant development in technology and digital transformation, with modern electronic trading platforms developed to support real-time order execution and provide market data instantly. Blockchain technologies have been adopted for some disclosure processes to increase transparency. Smartphone applications provide real-time alerts and market analyses, while direct linking solutions between foreign investors and the local market expedite execution. These technological innovations have enhanced the efficiency of trading operations and attracted new segments of local and international investors.

The Saudi stock exchange places increasing importance on financial and environmental governance standards. Listed companies are required to disclose their financial data and governance standards according to the Capital Market Authority's instructions, focusing on transparency and social and environmental responsibility. Tadawul has launched specific indices for companies committed to sustainability (ESG) standards, and the authority monitors companies' compliance with governance and disclosure policies. This trend enhances investor confidence and attracts foreign capital seeking responsible and sustainable investments.