Analysts expect mixed market trends in 2025, noticeable impact of Trump's return

Meanwhile, the recent IPO momentum, which witnessed the listing of 14 new companies, boosted the market depth and ramped up liquidity. However, this was not significantly reflected on the Saudi main index due to the limited weight of these newly-added stocks, they added.

The analysts also pointed out that the return of US President-elect Donald Trump to the White House may affect oil markets due to his widely-anticipated policies that are poised to further exacerbate volatility. But the Saudi market is likely to leverage on the stable regional ties and the promotion of several local mega projects, they added.

The year 2025, according to the polled analysts, holds growth opportunities in key sectors, including mining, insurance, renewable energy, and car rental, backed by continued government spending besides the possibility of interest rates falling to 3.9%. They noted that oil prices and geopolitical stability will likely be decisive factors in mapping out this year’s market outlook.

Tadawul Performance in 2024

Khalid Al-Zaidi, Financial advisor

Financial advisor Khalid Al-Zaidi said several factors contributed to the downturn of TASI at the outset of 2024, including the rising interest rates globally, inflationary pressures, and fluctuations in oil prices.

“However, this decline may be deemed within the normal range given the current circumstances, especially on the back of the relative improvement in the performance of some sectors such as healthcare and technology,” he added.

Abd-Rabbo Zeidan, Head of Research & Financial Data at Argaam

For his part, Abd-Rabbo Zeidan, Head of Research and Financial Data at Argaam, indicated that TASI's 2024 performance was a natural reflection of the performance of listed companies linked to the global economy.

This is especially since the TASI heavyweights are typically influenced by the global factors — for example global oil prices and their impact on Aramco, not to mention the Chinese economic conditions and their impact on local petrochemical companies and the overall oil demand. So, it is safe to say that the most heavily-weighted sectors in the Saudi main index had an evident influence on its performance.

Accordingly, the stability and slight increase in TASI's performance that has been extending since 2023 was a natural reflection of the performance of corporations that are directly impacted by the global economy, Zeidan explained.

"Meanwhile, it should be noted that some companies witnessed an uptrend in 2024, with about 30 firms recording an increase of more than 50%, most of which are active in the local market. However, given the limited weight of these companies in the index, these rises were not reflected in the performance of TASI,” he was quoted as saying.

He continued, “In my opinion, the outperformers were those who bet on mid-cap value and growth companies that are active in the local market and economy.”

Youssef Costantini, Senior Portfolio Manager at Watheeq Capital

Elsewhere, Senior Portfolio Manager at Watheeq Capital Youssef Costantini underlined that TASI witnessed a slight rise of 0.58% by the end of 2024, compared to the performance of the US stock markets and some commodities. He noted that the TASI index took a horizontal trend during the second half of the year.

The global financial markets are witnessing a state of unease, amid rising fears that the global economy may swing into a recession by the end of Q1 2025, according to the opinions of several international analysts, Costantini said.

He pointed out that the US national debt has surpassed the $36 trillion mark, which poses a heavy burden on the economy.

Despite the recent low inflation rates in the US, according to Costantini, the continued government spending due to the war in Ukraine and the conflict in the Middle East may lead to a return to higher inflation, explaining that these challenges may contribute to a possible correction in the financial markets.

Well-known investor Warren Buffett currently holds $325 billion in cash, despite his previous statements and his preference for investing over keeping cash. The Buffett Indicator, which measures the ratio of the market value of US stocks to GDP, has now reached 200%, a high level compared to previous bubble periods, as it reached 130% and 100% during the 2000 and 2007 bubbles, respectively, he further stated.

He added that the S&P 500's dividend yield stands at a historically low 1.5%, its lowest since 1957.

New IPOs’ Momentum in 2025

Tarek Al Madi, Economic writer

Tarek Al Madi, an economic writer, said, “The present issue is not only the new IPOs, but also the subscriptions to rights issuances, which are witnessing strong demand from corporates. However, these transactions indeed absorb liquidity from the market and traded stocks, which could negatively affect the periods of medium-term investment and speculation.”

There must be a careful balance between new company listings and market expansion in a way that does not affect the overall index performance, he added, indicating that the recipe for market success is the growth sustainability of these companies post-listing.

He further stated that, looking at the figures of some companies that were listed on the market years ago, they offer better and safer investment opportunities than some newly-listed firms. Evaluating their post-IPO performance two years later is insufficient, but we must ensure their growth aptitude in the coming years.

“If this criterion is applied, investing in already-listed companies may be more stable than in previous years. The criteria for new listings should be stricter to ensure a stronger market and more viable companies in the future,” he added.

Tadawul witnessed 14 IPOs during 2024, reflecting a strong momentum that supports the market's depth and attractiveness to local and international investors. This momentum positively affected the diversification of listed sectors, therefore boosting liquidity while fueling competition among peers, Al-Zaidi said.

He expected this positive slew of IPOs to continue in 2025, depending on market stability and economic reform measures, especially in light of initiatives taken under the Saudi Vision 2030.

For his part, Zeidan believes that given the Vision 2030 goals and the strategic plan announced by the Capital Market Authority (CMA), the current IPO momentum is poised to persist in 2025 amid the addition of new sectors, similar to the case in 2024.

These IPOs bode well for enhancing rather than reducing market liquidity, through the rush by individuals and institutions to subscribe to the new securities. Upon listing, this momentum continues, driving additional liquidity into the Saudi market, he added.

Meanwhile, Costantini pointed out that IPOs usually flourish during periods of stock market rallies, indicating that these stock offerings fuel a positive impact on Tadawul, albeit not that significant given the market’s whopping size, the value of which exceeds SAR 10 trillion. He added that the size of the recent IPOs fell short of making a noticeable impact on TASI, particularly with a daily turnover of about SAR 5 billion.

He also expected the pace of IPOs in the Saudi market to remain intact, being an essential pillar of the Kingdom's Vision 2030, which aims to transform family businesses into listed companies to reinforce their sustainability and achieve higher levels of governance and transparency.

Key Sectors Set for Growth in 2025

The core determinant in 2025 will likely be interest rates. This is because, after years of gradual rate hikes, interest rates are expected to continue to be lowered to 3.9% by year-end, as indicated by US Federal Reserve officials, according to Al Madi.

"This will certainly be reflected in the local lending rate, as 133 Tadawul-listed companies owe debts totaling about SAR 326 billion (excluding Aramco). Therefore, enterprises that borrowed loans with variable terms or require additional funding will be positively or negatively influenced during 2025,” he added.

Saudi Arabia's Q3 2024 witnessed a 28% year-on-year (YoY) surge in credit facilities to SAR 24.1 billion, coinciding with interest rate cuts, according to a CMA report. This growth was largely attributed to the interest rate cuts initiated during the quarter, he said.

Oil prices, another key influencer on the Saudi market, have seen global demand forecasts for 2025 revised downwards by OPEC, marking the fifth consecutive downward revision by the organization.

Furthermore, Bank of America anticipated that a global oil surplus of 800,000 barrels per day (bpd) could exert downward pressure on crude prices in 2025 as production outpaces demand growth. Surveys suggest that Brent crude prices may average $74.53 per barrel in 2025, according to Al Madi.

Meanwhile, sectors such as technology, mining, and insurance are poised for promising growth in 2025. The banking sector is also expected to thrive, especially with declining interest rates. The basic materials sector is projected to perform strongly, underpinned by rising oil prices, he highlighted.

A key driver of the TASI's upward trajectory is the robust government spending on mega projects. The 2025 budget projects revenues of SAR 1.184 trillion, against expenditures of SAR 1.285 trillion, signaling the continued robust government spending.

Other drivers of the Saudi financial market include geopolitical developments, continued interest rate reductions, sustained foreign investment growth, rising oil prices, and the ongoing growth of the non-oil economy.

Zeidan believes that the Saudi capital market offered attractive valuations by the end of 2024, anticipating further growth across most sectors. However, he advises traders to remain flexible in their trading strategies.

He emphasized that the initial focus should be on high-value and growth sectors, such as banking and financial sector companies, which are predicted to benefit from the 2024 interest rate cuts and the potential developments in 2025. Additionally, insurance companies are likely to gain ground from the Saudi recent reinsurance decision.

The healthcare and pharmaceutical companies, according to Zeidan, represent value and growth opportunities, particularly after their recent price declines in tandem with their expansion activities.

Similarly, companies in the car rental sector are expected to capitalize on the lower interest rates and their ongoing expansion. Retail companies, including fuel providers and firms involved in Vision 2030-related infrastructure projects, are also projected to perform well.

He added that many corporate stocks are currently attractively priced. In the initial stage, it is preferable to focus on locally-active companies that have formerly experienced stock price declines.

TASI, as per Zeidan, is seen to rise to approximately 13,500 points, driven by geopolitical stability and the anticipated two interest rate cuts in 2025. These factors are slated to shift investments towards the stock market, away from alternative options such as bonds.

He further noted that banks are likely to support the market performance, as the sector is experiencing growth in deposits and loan balances, driven by Vision 2030 projects. Bank-related stocks have also seen favorable pullbacks, contrary to earlier expectations for 2024.

Meanwhile, Al-Zaidi stated that despite the mixed performance of sectors and stocks during 2024, certain industries have signaled strong growth potential in 2025.

He highlighted sectors such as technology, renewable energy, tourism & entertainment, and financial services as key beneficiaries of the ongoing Saudi government support for digital transformation and Vision 2030 sustainability initiatives.

Furthermore, increased investments in mega projects such as NEOM, The Red Sea, and Qiddiya, along with the growing shift toward digital banking services, are seen to drive significant growth in these sectors.

Impact of Oil Prices on Saudi Market’s Performance

Al-Zaidi emphasized the strong correlation between the Saudi economy and oil prices, highlighting that price fluctuations exert a direct influence on the capital market.

Given the current global challenges and the persisting fears of a possible economic recession, oil prices are estimated to range between $70-90 per barrel in 2025, the financial advisor stated.

He pointed out that stable oil prices at relatively high levels would support the state budget, while fluctuations in its prices could affect investor sentiment, especially in energy-related sectors.

Elsewhere, Costantini highlighted that the Saudi economy is experiencing a revenue downturn due to the lower Brent crude oil prices, currently hovering around $74 per barrel, compounded by the voluntary production cuts implemented by OPEC+.

Two key factors are currently impacting the oil markets: Lower Chinese oil demand and the anticipated stimulus measures for the US energy sector under the Trump administration.

Further, Zeidan stressed that oil prices pose as a significant influence on the TASI performance, primarily due to their direct impact on Saudi Aramco's stock, the index's largest constituent, and the broader petrochemical sector.

He projected oil prices to range between $71-$76 per barrel in 2025, citing anticipated weakness in global demand and oversupply concerns. He cautioned that escalating geopolitical risks could drive prices as high as $82.

Impact of Ukraine Crisis

Zeidan emphasized that the geopolitical woes imply a key source of volatility for both the Saudi market and the global economy. He further noted that foreign investors typically seek stable and attractive investment environments.

He clarified that the local market may have initially digested the Ukraine events, but the war's impact on oil prices still persists.

While acknowledging the absence of vital impacts, Costantini anticipated that the process of rebuilding Arab countries and supporting Ukraine shall require the export of many products such as medical supplies, food, and building materials, in addition to petrochemicals.

The Kingdom will be at the forefront in exporting these products, thanks to the readiness of its factories to meet demand, which will positively reflect on the companies’ results in the coming years.

Trump’s White House Return: Global & Regional Implications

President-elect Trump’s return to the White House bodes well for Saudi Arabia, Costantini said, citing the Kingdom’s great strides under Vision 2030 and Trump’s close ties with Crown Prince Mohammed bin Salman.

Trump is expected to boost US oil production and exports, likely pressuring global oil prices downward, Costantini added.

Meanwhile, Al-Zaidi warned that the stricter trade and energy policies under the Trump administration may increase oil market volatility. However, Saudi Arabia could generate gains if these policies drive higher oil prices.

Energy and petrochemical sectors stand to benefit from rising oil prices, but heavy industries reliant on global trade are poised to face challenges amid a potential return to trade wars. The impact hinges on US policies toward the Middle East and energy.

Zeidan also noted previous optimism in the Saudi, GCC, and global markets after Trump’s election, which in turn bolstered market performance.

He suggests Trump’s return could resolve regional conflicts and enhance stability, hence benefiting the Saudi stock market.

A stronger US dollar would also support the Saudi riyal, attracting additional foreign investments, the research head explained.

Zeidan cautioned that escalating US-China tensions could weaken the Chinese economy, therefore curtailing oil demand and impacting stocks like Aramco and other petrochemical providers.