Fear Index in the Saudi Financial Market: Its Concept and Impact on Local Stocks

The fear index is a term used to describe measures that reflect the level of anxiety and tension among investors in financial markets. Globally, the VIX index issued by the Chicago Board Options Exchange (CBOE) is the most recognized benchmark, measuring the expected volatility of the S&P 500 based on option prices. When the VIX rises, it indicates increasing expectations of market volatility, which typically translates to a state of concern among investors and the likelihood of declining stock prices.

In the Saudi financial market, there is no official fear index similar to the VIX. Instead, the state of fear is monitored through fluctuations in the general index (TASI), liquidity movement, and the performance of sensitive sectors such as cement and banking, in addition to monitoring oil prices. When there are sharp fluctuations in oil prices or escalating regional tensions, this quickly reflects on the sentiment of Saudi investors, showing in declining stock prices or sudden increases in trading volumes.

There is no official fear index in the Saudi financial market, but investors and researchers can measure or infer it through a set of secondary indicators. Among the most important of these tools are fluctuations in the main market index (TASI), daily trading volume volatility, sudden increases or decreases in oil prices, and movements in gold and government bond prices. When the volatility in TASI increases, or the market experiences significant cash outflows, this is considered a signal of rising fear levels.

Additionally, the level of fear can be inferred through investor sentiment indicators issued by some research centers or financial institutions. For example, waves of collective selling or a shift to safe havens (such as gold and bonds) are interpreted as signals of increasing market fears. This was clearly evident during geopolitical events such as the Gaza war in early October 2023, where the Saudi market experienced a wave of sharp fluctuations and a decline in stock prices sensitive to energy and construction.

The level of fear in the Saudi financial market is influenced by several key variables, the most prominent of which are: fluctuations in oil prices, geopolitical events in the region, global economic reports, and changes in local government policies. Given the heavy reliance of the Saudi economy on oil, any sudden change in oil prices directly reflects on market sentiment. Additionally, regional tensions, such as conflicts in neighboring countries, increase caution among investors.

Other influencing factors include the results of listed companies, especially in cyclical sectors like cement. For example, when a company like Hail Cement (3001) announces financial results below expectations or losses, this may increase investor anxiety and lead to a decline in the stock price. Furthermore, tightening global or local monetary policies (such as raising interest rates) adds further pressure on stocks and increases the fear index.

Despite the absence of an official fear index in the Saudi market, there are several indicators and tools used by analysts to estimate investor sentiment. These tools include trading ratios between individuals and institutions, the standard deviation of stock price movements, the daily liquidity volume index, and global purchasing managers' indices. The movement of gold and Saudi government bonds is also considered indirect indicators that capital flows to when fears intensify.

Technical analysis also provides tools such as moving averages for volatility and the implied volatility index for leading stocks. Monitoring investor sentiment reports issued by research institutions or investment banks, in addition to reports from credit rating agencies, helps build a general picture of market mood and the prevailing levels of caution or optimism.

Cyclical sectors, such as cement, are the most sensitive to fluctuations in investor sentiment and rising fear indices. When fears in the market increase (for economic or geopolitical reasons), investors tend to avoid stocks linked to economic growth or government projects, turning instead to less risky assets. The cement sector in Saudi Arabia is particularly affected by fluctuations in domestic demand, infrastructure projects, and energy prices.

During periods of rising fear indices, stock prices of cement companies, including Hail Cement (3001), often decline due to reduced profit expectations or delays in major projects. Conversely, when fears subside and the economy stabilizes, cyclical stocks regain attention as expectations improve and demand for their products increases.

Hail Cement stock (3001) has experienced notable fluctuations during 2024 and 2025, with its price ranging between 4.5 and 6.3 Saudi Riyals per share, stabilizing at around 5.7 Riyals in early 2025. These fluctuations reflect the stock's sensitivity to general market factors, including fear waves resulting from oil price fluctuations or regional events.

During periods of rising fear indices or declining investor confidence, Hail Cement stock faces selling pressure, especially when announcing financial results below expectations or delaying dividend distributions. For instance, the company reported a net loss in Q4 2024, leading to a temporary decline in the stock. Conversely, with the beginning of economic indicators recovering or the announcement of expansion projects, the stock regains some of its attractiveness to investors seeking opportunities in the construction sector.

During 2024 and 2025, the financial indicators for Hail Cement stock (3001) showed a mixed picture between challenges and recovery opportunities. The stock price in early 2025 was around 5.7 Riyals, while the company's market capitalization was approximately 2.1 billion Saudi Riyals based on the number of ordinary shares (366 million shares). The price-to-earnings (PE) ratio ranged between 12 and 15 times, which is relatively high for the cement sector, reflecting profitability challenges during 2023 with gradual improvement in 2024.

As for cash distributions, none were paid for 2023 due to operational losses, while a distribution of 0.10 Riyals per share was proposed at the end of 2025 (yielding a distribution return of about 1.8%). The company also showed a decrease in financing expenses and stable raw material costs, while the debt ratio remained at 0.5:1. Overall, the data indicates that the company is entering a gradual recovery phase while still facing pressures from demand fluctuations and energy prices.

The cement sector is considered a vital pillar of the Saudi economy, supported by infrastructure projects and significant domestic demand for building materials. The sector includes more than ten major companies, including Hail Cement (3001), competing for market share by reducing costs and developing products.

Challenges facing the cement sector include local oversupply due to production expansion, fluctuations in energy prices (diesel and electricity), and a slowdown in global growth affecting cement exports. Additionally, any reduction in government spending or delays in major projects immediately reflect on domestic demand. Despite government support and sustainability initiatives (such as green cement production), the sector remains vulnerable to fluctuations in investor sentiment, especially during periods of rising fear indices or geopolitical crises.

Oil is the primary driver of the Saudi economy, and any fluctuations in its prices directly affect investor sentiment and fear indices in the market. When there is a sharp decline in oil prices, concerns about the government's ability to continue spending on major projects increase, leading to a decline in stock prices, especially in cyclical sectors like construction and cement.

Conversely, rising oil prices lead to improved investor sentiment, increased liquidity in the market, and a decrease in the fear index. Therefore, analysts and investors in the Saudi market closely monitor global oil indicators, such as the OVX energy index, as an indirect measure of risk levels in the local market, in addition to monitoring any developments that may affect oil market stability.

Geopolitical events play a pivotal role in raising or lowering the fear index in the Saudi market. For example, the outbreak of a regional conflict or escalating tensions in the region usually leads to a wave of selling in local stocks, with investors preferring safe havens. These effects become evident during times of global or regional crises, such as the Gaza war in October 2023, which led to price declines and increased volatility in the Saudi market.

Additionally, global economic changes (such as rising U.S. interest rates or economic slowdown in China) affect investor sentiment in Saudi Arabia. Furthermore, local government actions, such as restructuring the cement sector or supporting infrastructure projects, can mitigate the effects of fear and support market stability.

When the fear index rises, investors tend to be cautious and avoid risk, leading them to sell cyclical stocks or those with high volatility, while holding cash or buying bonds and gold. This collective behavior results in declining stock prices and increased market volatility. On the other hand, when the fear index decreases and confidence returns, investors return to buying stocks, especially in sectors linked to economic growth.

These patterns are clearly visible in the Saudi market, where investor sentiment directly impacts stock performance, particularly for cement companies like Hail Cement (3001). Understanding the relationship between the fear index and investor behavior helps market participants read general trends and anticipate periods of volatility or stability.

To address the risks of a rising fear index, financial institutions and listed companies in the Saudi market take several measures. These include enhancing liquidity, improving risk management, and resorting to financial hedging tools. Companies also work to diversify income sources and reduce operational costs to mitigate the impact of recessionary periods or sharp fluctuations.

In cases of rising fear, the importance of transparency and financial disclosure increases, as companies strive to reassure investors by publishing periodic reports and updates on financial performance and expansion plans. At the level of government policies, regulatory authorities usually announce supportive measures, such as financing projects or supporting banking liquidity, to calm the markets and restore stability.

Hail Cement Company (3001) has recently witnessed several significant developments affected by the level of the fear index in the market. In Q4 2024, the company announced a net loss of 15 million Riyals due to rising maintenance costs and fluctuating energy prices, which reflected on the stock price and trading volume. In Spring 2025, the company benefited from low-interest financing bonds to improve liquidity and implement technical modernization projects.

On the other hand, the company committed to environmental sustainability standards, showing a 15% reduction in carbon dioxide emissions according to government inspection results. It also announced a plan to increase production capacity by 10% by 2026, in an attempt to anticipate the expected demand for cement. These actions reflect the company's commitment to adapt to market conditions and contain risks arising from fluctuations in investor sentiment.

Understanding the fear index and monitoring its levels are essential skills for any investor in stock markets, especially in a volatile environment like the Saudi financial market. This helps investors better read the market environment, assess overall risks, and avoid making hasty investment decisions based on immediate reactions.

Investors should monitor economic indicators, market sentiment reports, and liquidity movements, linking them to local and global variables. Paying attention to these unofficial indicators, such as TASI volatility or oil prices, enables investors to build a comprehensive picture of the prevailing level of fear or optimism, and thus make more informed financial decisions.