RIYADH — Saudi Arabia's stock market showed resilience in the first quarter of 2025 despite global volatility, with the Tadawul All Share Index (TASI) finishing the period nearly flat at -0.1%, according to Riyad Capital's latest market report. The outlook for the remainder of the year remains positive, underpinned by expected earnings growth, steady IPO momentum, and robust non-oil economic activity. Riyad Capital forecasts low-to-mid single-digit growth for the Saudi market in 2025. The anticipated recovery will be supported by strong earnings from banks, telecom, media, and technology (TMT) sectors, healthcare, and newly listed firms. The analysts expect two interest rate cuts in the latter half of the year to further lift investor sentiment and market activity. Although turnover dropped by 34% year-on-year in 1Q25 to SR5.9 billion per day, sentiment is projected to recover in H2 2025. The market currently trades at a forward price-to-earnings (P/E) ratio of 14.8x, offering a 39% discount to its five-year average — making it attractively valued relative to peers. The IPO pipeline continues to gain momentum. In the first quarter alone, three companies — Derayah, Entaj, and Masar — were listed on the main market, raising nearly SR4 billion collectively. The report highlighted that listings span diverse sectors including manufacturing, financial services, and aviation. The parallel Nomu market saw six IPOs, with a total offered value of SR228.7 million. While the Nomu index slipped 1% in the quarter, investor appetite remains healthy as companies increasingly use it as a stepping stone to the main market. Telecom and banking sectors drove positive attribution to index performance, while energy and utilities acted as drags. Among top gainers for Q1 were SRMG, Anaam, and Red Sea Global, each recording sharp rebounds from their 52-week lows. On the flip side, companies like Masar and Dar Al Arkan saw double-digit declines from their previous highs. The sector performance also painted a mixed picture: media and entertainment surged 15%, utilities gained 13%, while real estate management and development dropped 9%, and banks fell 4%. Notably, large-cap stocks outperformed small- and mid-caps during the quarter. Saudi Arabia's growing presence in emerging markets is evident from its increased weight in the MSCI Emerging Markets Index — from 2.5% in 2019 to 4.2% in 2025. The Kingdom now trades at a 39% P/E discount to its five-year average while offering a 3.9% dividend yield, further enhancing its investment appeal. Globally, Saudi stocks slightly outperformed developed and emerging markets, with TASI down just 0.1% compared to a -2% drop in developed markets and a 2% gain in EMs. Inflation in the Kingdom is forecast to remain contained at 2.5% in 2025. GDP growth is estimated at over 3%, with non-oil sectors expected to expand more than 4%. The population increase, particularly from rising expatriate numbers, is also likely to support demand across housing, services, and consumer goods. The report highlighted challenges in the oil sector amid soft crude prices. Riyad Capital's in-house Brent crude forecast stands at $68/bbl for 2025. Meanwhile, geopolitical and trade uncertainties — such as the U.S.'s sweeping 10% import tariff and additional levies on China and Europe — have already affected market sentiment globally. Saudi exports remain heavily skewed toward Asia, with China and India accounting for 15% and 9% of total exports, respectively. The UAE is a key non-oil export destination, absorbing 23% of that segment. On April 6, TASI experienced a sharp 6.8% drop, marking the 14th time in 15 years that it has endured a 20% drawdown. Historically, such declines have been followed by positive six-month returns over 75% of the time, with an average gain of 12%. Moreover, weak first quarters have often preceded full-year gains for TASI in eight of the past 10 years.
