Saudi market performance positive YTD, liquidity healthy: EFG Hermes

Ahmed Shams El Din, Head of Research at EFG Hermes, said the Saudi stock market rose 2% in January and February 2025, reflecting a positive start for the market this year.
 

Speaking to Argaam on the sidelines of the Capital Markets Forum, Shams El Din said trading volumes were strong, and some IPOs helped attract additional liquidity, reinforcing expectations for the market’s performance in the coming months.
 

The Saudi market has robust liquidity, making it one of the deepest markets in the region, he said, expecting liquidity to increase further amid lower interest rates.
 

Shams El Din said Saudi Arabia remains the largest market in terms of trading volume, investment opportunities, and sector diversity.
 

He emphasized that significant investments and development are taking place across various fields, such as real estate and industrial development, creating substantial investment opportunities. The real estate, utilities, and hospitality sectors are among the most promising, the official noted.
 

He highlighted that new regulations allowing for investment in publicly listed local companies that own real estate in Makkah and Madinah boosted foreign investor appetite. These sectors will continue attracting investors, given the anticipated regulatory developments, with more regulations anticipated similar to the foreign ownership law issued earlier this year.
 

Further, the official said banks did not perform strongly last year compared to the market average due to challenges related to funding and liquidity. However, he believes that bank stocks did not reflect the sector’s strong fundamentals, making it one of the most promising sectors for growth this year.
 

He also pointed out that the construction and infrastructure sector is crucial in Saudi Arabia. Although it is not significantly represented in the market, any new listings in this industry would witness substantial investor interest.
 

As for mergers and acquisitions (M&A), Shams El Din said there are attractive opportunities for mergers, particularly in sectors with many mid-sized players. He indicated that the food and real estate sectors, which include numerous small to mid-sized developers, could see extensive M&As to create larger entities with strong financials capable of keeping up with market developments.
 

Regarding the impact of interest rate cuts on the market and investment opportunities, Shams El Din noted that while a rate cut is widely expected, its percentage remains uncertain due to global inflation and debt policies in major economies. However, he expects lower interest rates to have a positive impact on bank lending and market liquidity. Additionally, dividend-paying companies, which lost some appeal when interest rates were high, are likely to become more attractive to investors.
 

Shams El Din also highlighted the strong role of foreign investors in the Saudi market, as they currently dominate 10% and 15% of the total market trading volume. Accordingly, this significantly boosted market liquidity over the past three years, thanks to increased participation from foreign institutional investors.
 

The Saudi market's weight in global indices is approximately 4.5%, according to EFG Hermes estimates, while active fund managers currently allocate between 1.5% and 1.6% of their portfolios to Saudi equities.
 

While some fund managers are waiting for lower valuations, opportunities in sectors such as consumer goods, healthcare, insurance, real estate, and hospitality support expectations of an increase in foreign investor participation, Shams El Din concluded.