RIYADH: The market capitalization of Saudi Arabia’s Tadawul All Share Index reached $2.7 trillion at the end of 2024, representing a 10-year rise of 463 percent, according to an analysis. 

In its latest report, credit rating agency S&P Global said the stock market is expected to play a crucial role in materializing the Kingdom’s economic transformation goals outlined in Saudi Arabia’s Vision 2030 initiative. 

The US-based agency added that Tadawul, compared to other major global equity markets, remains dominated by large government-related entity issuers and has relatively low, albeit gradually increasing, trading volumes and foreign participation.

The Kingdom’s stock market has been crucial in steering the nation’s economic transformation efforts, fueled by robust economic reforms and growing interest from regional and international investors. 

In January, a report released by Kamco Invest said that Saudi Arabia led the Gulf Cooperation Council initial public offering market in 2024, earning a global ranking of seventh in total IPO proceeds.

In its analysis, S&P Global said Saudi Arabia has undertaken several reforms and market infrastructure investments over the past decade to grow its capital markets. 

“These reforms are crucial to further advance its Vision 2030 goal of increasing its economic, social, and cultural diversification,” it said, adding: “The stock exchange Tadawul’s inclusion in major emerging market equity indices in 2019 was a key milestone and over the past decade, its market capitalization has increased 463 percent.” 

IPO momentum

According to the report, one of the key milestones in Tadawul’s journey was the IPO of energy giant Saudi Aramco in 2019, which raised $29.4 billion, significantly elevating the exchange’s market capitalization and global standing.

Between 2014 and 2024, Tadawul’s main market hosted 91 IPOs for an aggregate offering of about $65 billion, excluding additional listings such as Aramco’s secondary offering of about $11.2 billion in July.

On May 6, a separate study by professional consulting firm EY also highlighted the growth of IPOs in Saudi Arabia’s main index and its parallel market, Nomu. 

According to EY, the Kingdom witnessed 12 IPOs in the first quarter of this year, with five listings on Tadawul and seven on Nomu. 

Overall, during the first three months of 2025, the main market generated $1.8 billion in total proceeds, while the parallel index raised $69 million.

Despite the IPOs of many private sector companies, public sector entities represent the bulk of new listings in Tadawul, S&P Global said in its latest report. 

The analysis added that government-backed firms have generated about $44 billion of the estimated $65 billion of aggregate IPO value over the past decade. 

“In addition to Aramco, Ades Holding and ACWA undertook IPOs of $1.2 billion each; Tadawul raised $1 billion in its own offering, in addition to other public-sector entities,” said S&P Global. 

Regulatory reforms

S&P Global further said that the efforts of Saudi authorities to further develop Tadawul will help attract domestic and international capital, which will increase market liquidity for the long term.

The large funding requirements for Vision 2030 projects are also expected to stimulate the stock exchange in Saudi Arabia. 

The report added that the holdings of foreign investors in Tadawul continue to rise but remain low — at about 4.2 percent of the market, or about 11 percent of the free float, as of year-end 2024. 

According to the analysis, Saudi Arabia’s ongoing initiatives to improve market liquidity and increase foreign shareholdings on Tadawul, such as a new investment law and pension fund reforms, should help grow portfolio inflows. 

In August, the Kingdom announced an updated investment law to enhance foreign direct investment flows. The Ministry of Investment stated that this would boost transparency and simplify the investment process.

The update promised enhanced protections for investors, including adherence to the rule of law, fair treatment, and property rights, alongside robust safeguards for intellectual property and seamless fund transfers. 

“Although a key objective of the new regulation is to improve foreign direct investment flows, we expect it will also support inflows to capital markets, including to Saudi equities,” said the report. 

Regarding the growing pension funds in Saudi Arabia, S&P Global said that reforms in this sector could advance the development of equity markets in the Kingdom. 

“The authorities have implemented several important changes to the country’s pension system in recent years. Pension systems are important funding and liquidity providers as long-term investors in capital markets worldwide. Over the past few decades, we have seen many examples of pension funds playing a key role in the development of local capital markets,” said the analysis. 

In 2021, Saudi Arabia merged its private sector pension fund with the General Organization for Social Insurance, the public sector pension system. 

According to 2023 disclosures, GOSI had about $129 billion, or about 12 percent of the gross domestic product, invested in Saudi equities. 

In 2024, the Kingdom announced additional reforms, which include raising the retirement age to 65 from 58. 

“Saudi Arabia also increased the required contribution period to qualify for early retirement to 30 years from 25 years, which we believe will increase the average contribution period and hence investable period for GOSI. Given GOSI’s size and investments in the local equity market, this will support long-term local demand for Tadawul and its liquidity,” added S&P Global. 

The report added that equity markets will allow the economy to diversify sources of funding for the Vision 2030 program, as the financing needs for giga- and mega projects are estimated to cost more than $1 trillion. 

According to S&P Global, the government and the Public Investment Fund will raise new debt of about $60 billion, or 4.9 percent of GDP, annually from 2025 to 2028.

The study added that banks in Saudi Arabia will witness a robust credit growth of 10 percent during the same period, driven primarily by corporate lending related to Vision 2030. 

“However, these will likely be insufficient to meet all the funding requirements. Growth in equity markets will enable companies and financial institutions to allocate more capital toward investments while managing leverage,” said the report.