The Index in the Saudi Stock Market: Definition, Composition, and Investment

An index is a statistical tool used to measure the performance of a group of stocks or securities in the financial market. In Saudi Arabia, the term "index" often refers to the main market index (TASI), which includes all companies listed on Tadawul. The index acts as a mirror reflecting market movements, with its value calculated based on the prices of its constituent stocks, taking into account the relative market capitalization weights of each company. The index provides a quick indication of the market's economic condition and serves as a benchmark for investors and financial institutions when comparing the performance of different sectors or markets. By tracking the index, one can assess market stability, sector profitability, and the impact of economic and political events on the Saudi stock market.

The Saudi Stock Market's main index (TASI) comprises all companies listed on the market, distributed across various economic sectors such as financials, industrials, energy, telecommunications, consumer goods, and others. The index is calculated using a market capitalization-weighted system, meaning that larger companies by market value have a greater impact on the index's movement. The index composition is updated periodically to reflect market changes, including new listings, delistings, or changes in market capitalization. This structure ensures that vital sectors are accurately represented, so the index reflects the true performance of the Saudi economy and its driving sectors.

The main index is calculated according to specific rules based on aggregating the market values of listed stocks (share price × number of issued shares) after excluding non-eligible ownership stakes, such as government holdings or major shareholders whose shares are not freely traded. The base value of the index is periodically adjusted to ensure continuity of measurement, taking into account the effects of stock splits or capital increases. This methodology allows for accurate tracking of market performance over time, without the index being affected by non-fundamental movements such as dividend distributions or capital restructuring. The Capital Market Authority issues regular updates to the index calculation standards to ensure transparency and fairness in market representation.

The index plays a pivotal role in providing a comprehensive picture of the performance of the Saudi stock market. It is a primary tool for analyzing major trends, whether upward or downward, and serves as a benchmark for comparing the Saudi market's performance with regional and global markets. Investors and investment funds use it as a benchmark to evaluate portfolio results, while financial institutions rely on it for decisions such as asset allocation or risk assessment. Additionally, the index is a general economic indicator, reflecting levels of confidence in the national economy, liquidity, and capital flows. A rising index typically signals improved company performance and increased demand for stocks, while a decline indicates caution or economic slowdown.

The main index is divided into major economic sectors that play varying roles in driving its value. Prominent sectors include: financial (banks and insurance companies), industrial (oil, petrochemicals, building materials), services (telecommunications, retail), and energy (oil and gas). Each sector contributes differently to the index, with companies such as Saudi Aramco in energy, National Commercial Bank and Al Rajhi Bank in financials, and Saudi Telecom Company (STC) in services standing out. The importance of these sectors shifts over time based on economic developments, and changes in oil prices or government policies directly impact the index through these sectors.

The main index is affected by several internal and external factors, most notably global oil prices, which form the backbone of the Saudi economy. Government decisions, such as the launch of Vision 2030 projects or opening the market to foreign investors, increase market attractiveness and lift the index. Global events, such as economic crises or changes in monetary policy, also play a role in determining the index's direction. Additionally, trading volumes, supply and demand for stocks, and the results of major companies directly impact the index's performance. High liquidity and increased daily trading volumes often reflect investor confidence and drive the index upward.

In addition to the main index (TASI), the Saudi stock market maintains several sub-indices, such as the Nomu (Parallel Market) Index, which includes small and medium-sized companies. These sub-indices allow investors to track the performance of specific companies or sectors more precisely. The Nomu Index saw significant growth in 2024 as interest in emerging companies, especially in technology and services, increased. There are also sectoral indices focusing on banks, petrochemicals, telecommunications, and others, serving as important analytical tools for studying the dynamics of each sector individually. These indices help specialists compare performance and identify sources of growth or decline within the market.

The main index of the Saudi stock market witnessed remarkable development during 2024-2025. The index closed at around 11,000 points at the end of 2024, recording growth of 8-10% compared to the end of 2023. It continued to rise, reaching 12,000 points in the first quarter of 2025, driven by new IPOs and increased investor confidence. The market capitalization of listed stocks rose to SAR 9 trillion by the end of 2024, then to SAR 10.2 trillion by mid-2025. The energy and petrochemical sectors played a leading role in this growth, alongside the financial sector, which saw high profitability. Daily liquidity also increased, ranging between SAR 25-28 billion in the first half of 2025, reflecting heightened market activity.

Major companies play a key role in determining the direction of the main index due to their large market weights. Saudi Aramco tops this list, representing about 30-35% of the index value, with its share price around SAR 36 in mid-2024 and a market capitalization nearing SAR 9 trillion. It is followed by major banks such as National Commercial Bank (share price SAR 25, P/E around 14) and Al Rajhi Bank (share price SAR 75, P/E around 15), as well as telecom companies like STC (share price SAR 130, P/E around 18). The performance of these companies is directly reflected in the index, as their strong profits or dividends lift the index, while weaker results may cause it to decline.

The Saudi index enables investors to compare local market performance with regional markets such as the UAE and Qatar, as well as global emerging markets like the MSCI Index. In 2024, the Tadawul index recorded stronger growth than some Gulf indices, such as the Dubai DFM Index, thanks to the performance of the energy and industrial sectors. The inclusion of the Saudi market in global indices such as MSCI and FTSE has attracted foreign investment and increased liquidity. These comparisons highlight the Saudi market's position as one of the largest emerging markets in the region and reveal performance differences based on the local economy and sectoral composition of the index.

The index is used as a primary benchmark for evaluating the performance of investment funds, especially exchange-traded funds (ETFs) that closely track the index's movement. These funds allow individual and institutional investors to invest in a broad basket of stocks representing the index, providing automatic diversification and reducing individual risk. Pension funds and institutional investors also rely on the index for asset allocation and portfolio review. The index's importance is growing amid regulatory changes allowing greater foreign capital inflows, making it a measure of market confidence and long-term investment appeal.

The index's role goes beyond being an analytical tool to become a reference for economic decision-making at the state and corporate levels. Regulatory bodies rely on the index to evaluate the results of economic policies, such as privatization programs or encouraging foreign investment. Major companies use index performance to determine the timing of IPOs or acquisitions, while banks use it to set credit limits and assess risks. The index also serves as a gauge of investor sentiment, reflecting optimism or caution in the market, and thus influencing capital flows and liquidity in the economy.

In 2024, the Saudi Capital Market Authority introduced significant regulatory updates, including raising the foreign ownership cap for certain companies to 49% and reducing the financial statement preparation period to 60 days. These measures enhanced transparency and boosted investor confidence, positively impacting the main index. The market also saw several new IPOs, such as the Saudi Military Industries Company and Swaicorp Oil Company, adding momentum and sectoral diversity to the index. These reforms reflect the regulators' commitment to developing a competitive and sustainable investment environment and strengthening the index's role as a primary indicator of national economic performance.

Despite the strong growth of the Saudi index in recent years, it faces challenges such as oil price volatility, political changes, and unexpected global events. On the other hand, Vision 2030 programs, economic diversification, and increased market listings offer opportunities to enhance the index's strength and appeal. The expansion of non-oil sectors and the development of technology and tourism will make the index more stable and representative of the Saudi economy. Ongoing regulatory updates, attracting foreign investment, and developing new financial products remain critical factors for the index's future and its role in supporting economic development.