Global Market Indices: Comprehensive Analysis and Impact on the Saudi Market

Global market indices serve as benchmarks that measure the performance of a selected group of stocks across different financial markets worldwide. The concept of an index includes a set of selected stocks based on specific criteria (company size, sector activity, liquidity), and these indices are used to measure and analyze the performance level of a market or a specific sector. An index does not represent the price of a single stock, but rather the average performance of a basket of stocks, providing a broader picture of the overall economic situation.

The importance of these indices lies in their provision of an objective tool for comparing performance across different markets or sectors. For example, if the S&P 500 index rises by 10% over a year, it reflects that the largest 500 listed American companies have achieved overall growth by that amount, which investors and investment funds use to evaluate their strategies and portfolio performance. Additionally, global market indices contribute to enhancing transparency, tracking macroeconomic developments, and providing a reference for selecting investment assets.

Moreover, indices play a vital role in the creation of derivative financial products such as exchange-traded funds (ETFs) and index funds, allowing investors to diversify their portfolios at relatively low costs. Economic decision-makers rely on them to assess the effectiveness of economic policies, as upward or downward movements in indices often reflect investor confidence or concern about the future of the economy. In the Saudi context, the relationship between the local market and global indices has become clearer following the inclusion of Saudi stocks in MSCI and FTSE indices, leading to increased foreign financial flows and improved liquidity and prices, as well as a higher level of professionalism in the local market.

Global market indices vary based on coverage scope, stock selection methods, and the criteria they rely on. First, in terms of geographical scope, some indices cover the entire global markets (such as the MSCI World Index), while others focus on specific regions such as Europe, Asia, or emerging markets. There are also local indices for each country, such as the TASI index for the Saudi market.

Regarding the selection mechanism, there are market capitalization-weighted indices, where larger companies are given greater weight in the index calculation, like the S&P 500 and MSCI World. There are also price-weighted indices, where the index value is based solely on stock prices regardless of company size, as in the Dow Jones Industrial Average. Some indices are equally weighted, where each stock has the same weight.

Additionally, there are sector-specific indices (technology, energy, banking), value or growth indices, and others focusing on small or medium-sized companies. For example, the Russell 2000 index focuses on small companies. In emerging markets, indices include companies from countries like India, Brazil, Saudi Arabia, and others, as is the case with MSCI Emerging Markets.

These classifications are essential for investors and financial institutions, as they help them build diversified portfolios according to investment goals and required risk levels. The presence of specialized indices also highlights sectors or geographical areas with specific opportunities or challenges. In the Saudi market, for example, the performance of the banking or energy sector can be tracked through sub-indices, providing a clearer picture of each sector's contribution to overall market performance.

Indices calculate the average performance of a group of stocks according to a specific methodology. The process of building an index begins with selecting the constituent stocks, which are determined based on criteria such as market capitalization, trading volume, geographical or sectoral distribution, and more. After that, the relative weights of each stock in the index are determined, either based on stock prices, market value, or equally.

Some of the most common calculation methods include: 1) Market capitalization-weighted methodology, where the weights of companies are calculated based on their market size, meaning that larger companies have a greater impact on the index's movement. An example of this is the S&P 500 index. 2) Price-weighted methodology, where the index is calculated based solely on stock prices, as in the Dow Jones index. 3) Equal-weighted methodology, where each stock has the same weight, allowing the performance of smaller companies to impact the index similarly to larger companies.

Index data is updated periodically (real-time or daily), and the index is rebalanced at specified intervals (quarterly or annually) to add or remove stocks based on the criteria. Additionally, indices are usually calculated on a points basis (not currency), to facilitate comparisons over time. An increase in index points indicates an improvement in the performance of the constituent stocks, and vice versa. In the Saudi financial markets, the TASI index is calculated based on the market value of free-floating shares and is continuously updated during trading sessions. It is important to understand that indices typically do not include cash distributions in their main value unless the index is specifically designed to include total return (Total Return Index).

There are many global indices that hold significant importance among investors and economic policymakers. Foremost among them is the American S&P 500 index, which includes the largest 500 listed companies in the United States and serves as a primary benchmark for the performance of the American economy. In 2024, the S&P 500 index rose by approximately 15% in the first quarter, reflecting momentum in the technology, energy, and banking sectors. Meanwhile, the Dow Jones Industrial Average, which includes 30 major American companies, recorded historic levels during the spring of 2024 before retreating due to inflation and interest rate concerns.

In Europe, the British FTSE 100 index (which includes the largest 100 companies on the London Stock Exchange) and the German DAX index (which includes the largest 40 German companies) are leading indices, with the DAX reaching around 16,000 points in mid-2024. In Asia, the Japanese Nikkei index occasionally surpassed 35,000 points in 2024, indicating a recovery in the Japanese economy, while the Chinese Shanghai index stabilized around 3,000 points at the beginning of 2025 following government measures to stimulate the market.

Additionally, comprehensive global indices such as MSCI World and MSCI Emerging Markets are essential reference indices for international investors, allowing them to track the performance of advanced and emerging markets worldwide. These indices gain special importance with the increasing openness of local markets to foreign investment. In the Saudi market, the inclusion of Saudi stocks in these indices represents a qualitative leap that enhances the market's attractiveness and the flow of foreign liquidity.

Emerging market indices play a vital role in directing international investments toward rapidly growing countries and newly developed markets. Among the most prominent of these indices are the MSCI Emerging Markets Index and the FTSE Emerging Markets Index, which include markets from Asia, Latin America, and the Middle East, including the Saudi financial market.

The Saudi market has witnessed significant development since its inclusion in these indices, with foreign investment flows increasing markedly. In 2019, the inclusion of Saudi stocks in the MSCI Emerging Markets Index began, followed by a similar inclusion in the FTSE index. This inclusion led to an increase in daily liquidity in the Saudi market, with market data indicating that the market capitalization of Saudi stocks exceeded 2.7 trillion riyals by the end of 2024, and the TASI index rose to levels exceeding 11,000 points in several sessions.

This integration with global indices has increased the professionalism of the local market, as foreign investors now constitute an increasing percentage of trading volumes. It has also contributed to enhancing the confidence of local investors and supporting major companies in attracting new capital. On the other hand, the performance of the Saudi market has become more closely linked to global variables, such as oil price movements, major central bank policies, and changes in global demand. This highlights the importance of local and international investors keeping up with emerging market indices and understanding their impact on the Saudi market and investment strategies.

The Saudi financial market is significantly influenced by the movements of global market indices, even if there is no direct connection in daily trading. When global markets experience strong gains, this often reflects positively on investor confidence in the local market, leading to additional liquidity inflows, particularly from foreign investors. For example, in 2024, the American and European markets rose, which boosted the performance of the Saudi TASI market, trading around levels of 10,946 to 11,000 points in several sessions.

Conversely, sharp declines in global indices lead to a reduction in risk appetite among investors, prompting some to cut their positions in emerging markets like Saudi Arabia. Additionally, oil prices play a pivotal role in linking the Saudi market to global markets, as any change in crude prices directly affects the local economy and the stocks of major sectors.

Moreover, the monetary and economic policies of the United States and Europe influence capital flows to emerging markets. When the U.S. Federal Reserve raises interest rates, investors tend to redirect liquidity toward U.S. assets, which may lead to a decrease in liquidity in the Saudi market. Nevertheless, the Saudi market retains its attractiveness due to major government projects, strong domestic demand, and robust regulatory frameworks that protect the market from sharp global fluctuations.

There are three main indices that track the performance of the Saudi financial market: the TASI index (TASI), the MT30 index, and the Nomu index. The TASI index is the general and primary index of the market, measuring the performance of all listed stocks in Tadawul based on the market value of free-floating shares. In 2024, TASI recorded levels ranging between 10,000 and 11,000 points, reflecting relative stability in the Saudi market, especially amid ongoing economic growth and rising oil prices.

The MT30 index is a sub-index that includes the largest 30 Saudi companies by market capitalization and liquidity, reflecting the performance of leading companies' stocks such as Aramco, SABIC, and the National Commercial Bank. By mid-2024, the MT30 index recorded around 1,407 points, indicating the strong performance of major companies in the Kingdom. This index is used by investors to track leading stocks and their impact on the overall market.

As for the Nomu index, it is designated for the parallel market and includes small and medium-sized companies that are listed under less stringent criteria compared to the main market. By the end of 2024, the Nomu index reached around 26,553 points, reflecting the dynamism of this part of the market. It is worth noting that the Nomu index experiences greater volatility due to the nature of the companies listed in it. Monitoring these three indices provides a comprehensive understanding of the performance of the Saudi market and helps investors make decisions based on accurate and updated data.

Global market indices are directly affected by major economic events, such as changes in monetary policies, fluctuations in energy prices, natural disasters, geopolitical conflicts, and technological developments. In recent years, global inflation, U.S. Federal Reserve decisions regarding interest rates, and a slowdown in Chinese economic growth have had significant impacts on index movements.

For example, the S&P 500 index rose by 15% at the beginning of 2024, supported by growth in the technology sector, but later declined amid rising inflation concerns and tightening U.S. monetary policies. In Europe, the DAX index faced sharp fluctuations due to the energy crisis and rising gas prices following the Russian-Ukrainian war, while the FTSE index was affected by changes in oil prices and tax policies.

In Asia, the Nikkei index experienced strong gains due to easing monetary policies and improved exports, while the Shanghai index declined after government interventions to curb real estate speculation. These examples illustrate that indices are not only a reflection of corporate performance but also respond to global economic variables and investor sentiment. In the Saudi market, rising oil prices and ongoing Vision 2030 projects have played a key role in supporting local indices despite external fluctuations.

Global and local indices are intertwined in complex relationships based on mutual influence, where global indices affect the performance of local indices indirectly through several channels. First, foreign capital flows influence local markets, as global investors tend to shift liquidity between markets based on the performance of global indices, which reflects on local stock prices.

Second, fluctuations in global markets lead to changes in risk appetite; a decline in an index like the S&P 500 may prompt investors to reduce their positions in emerging markets or shift to safer assets, which could lead to declines in local market indices like TASI. Conversely, rising global indices attract liquidity and boost local investor sentiment.

Third, global economic policies impact local markets. For example, a rise in U.S. interest rates reduces the attractiveness of emerging markets in favor of investment in U.S. assets, which may lead to declines in local indices. In the Saudi market, these effects remain evident, especially after the inclusion of Saudi stocks in MSCI and FTSE indices, which has increased the correlation between the local market and global markets. Nevertheless, the Saudi market retains a certain degree of uniqueness due to its high local liquidity and government support for major projects.

The Saudi cement sector is one of the key sectors closely linked to developments in global and local indices, especially amid the construction boom in the Kingdom. Global demand for building materials, energy prices, and environmental sustainability policies affect the performance of cement companies both locally and globally. In 2024-2025, the sector witnessed significant improvement supported by the growth of Vision 2030 projects and increased government spending on infrastructure.

Globally, major cement companies such as Heidelberg Materials reported operating profits of 3.02 billion euros in 2023, reflecting a recovery in the sector after years of pressure related to the COVID-19 pandemic and rising energy costs. In the Saudi market, companies benefited from stable local demand, thanks to massive housing projects and expansion in new cities like NEOM and Qiddiya.

Saudi cement companies also face strong competition from local and global firms, along with pressures from rising fuel and raw material costs. Nevertheless, financial indicators show that companies like Hail Cement have maintained stability in profits and cash distributions, supported by ongoing demand for cement in northern Saudi Arabia. The importance of monitoring global indices in this sector is highlighted, as any changes in global markets or energy prices could directly impact the profitability of local companies.

Hail Cement Company is a prominent example of how Saudi companies are affected by changes in global and local market indices. The company operates in a vital sector serving construction projects in northern Saudi Arabia and faces intense competition from major local firms such as Yamama Cement, Qassim Cement, Eastern Cement, and Northern Cement. In 2025, the company's stock traded around 7.00 Saudi riyals, with a market capitalization of about one billion riyals, and a price-to-earnings ratio ranging between 12 and 15 times.

Despite competition from imported cement from China and Turkey, Hail Cement has managed to benefit from stable local demand, especially with continued government support for housing and infrastructure projects. The company has also maintained a policy of annual cash dividends ranging between 10% and 15% of capital, indicating relative stability in profits and liquidity.

The company's results are affected by global changes in energy prices and raw materials, in addition to environmental sustainability policies that are beginning to impose new challenges on the global cement sector. In 2023, the second-largest cement company globally, Heidelberg Materials, reported strong operating profits with positive forecasts for the following year, reflecting a recovery in global demand for cement. This global recovery, in turn, reflects on the performance of local companies like Hail Cement, enhancing growth opportunities and increasing the competitiveness of the Saudi sector in regional and international markets.

The Saudi cement sector is characterized by a high degree of competitiveness, with market shares distributed among several large, medium, and small companies, each serving a specific geographical area. Among the prominent competing companies are Yamama Cement, Qassim Cement, Eastern Cement, Northern Cement, and Al-Jouf Cement, along with other companies like Tabuk Cement and Madinah Cement. These companies compete on price, product quality, delivery speed, and after-sales services.

In recent years, the sector has faced new competition from imported cement, especially from China and Turkey, due to lower production costs in those countries and ample supply. However, Saudi companies benefit from stable demand supported by major government projects, with the total market capitalization of Saudi stocks exceeding 2.7 trillion riyals in 2024.

Financial performance varies among companies depending on their geographical location, production capacity, operational efficiency, and input costs. For instance, Hail Cement enjoys a locational advantage in northern Saudi Arabia, allowing it to cover major regional projects. Meanwhile, companies like Yamama Cement and Qassim Cement have a broader customer base in central and western regions. Financial indicators show stable profit growth for most companies with slight fluctuations linked to energy and raw material prices. The sector remains sensitive to changes in global prices but is supported by strong local demand and ongoing government initiatives to develop infrastructure.

The Saudi financial market faces multiple challenges amid its increasing connection to global indices. Among the most prominent challenges are global market fluctuations, changes in oil prices, global monetary policies, and pressures from foreign competition. For example, sharp declines in American or European markets may lead to liquidity withdrawal from the Saudi market, especially after its inclusion in MSCI and FTSE emerging market indices.

On the other hand, changes in energy prices pose a significant challenge for vital sectors such as cement, as rising fuel costs directly affect profit margins. Additionally, increasing competition from imported products imposes further pressures on local companies.

However, significant opportunities arise for the Saudi market, notably: continued massive government spending on infrastructure projects under Vision 2030, increased foreign capital inflows, and improved transparency and efficiency following the implementation of global standards. Furthermore, the inclusion of the Saudi market in global indices provides an opportunity to diversify the investor base and enhance liquidity, leading to increased professionalism in the market. It remains essential to continuously monitor global and local developments to ensure investment decisions are based on accurate data and comprehensive analysis.

Today, there are many tools and platforms that allow investors to easily and effectively monitor global and local market indices. Investors can access data on global indices such as the S&P 500, Dow Jones, FTSE, DAX, Nikkei, and Shanghai through major financial websites like Bloomberg, Reuters, Yahoo Finance, and official exchange websites. These platforms provide real-time updates, in-depth analyses, and charts to help investors track trends.

Locally, the Saudi Stock Exchange (Tadawul) website provides real-time data on the TASI, MT30, and Nomu indices, along with details about individual stocks, trading volumes, cash distributions, and market news. Smartphone applications also offer instant access to indices, with alerts for significant changes.

It is important for investors to use reliable and credible sources when monitoring indices and to understand that real-time data should be read in the context of broader economic events. It is also advisable to review quarterly and annual reports of listed companies and analyze long-term trends rather than relying on short-term daily movements. This helps build a comprehensive understanding of market movements and make informed investment decisions, while also considering consulting a licensed financial advisor before making any significant financial decisions.