The stock markets in Saudi Arabia, especially the Saudi Stock Exchange (Tadawul), have experienced remarkable progress and advancement, establishing the Kingdom as a significant player in the worldwide financial landscape. This growth is largely credited to Saudi Arabia’s ambitious Vision 2030, a comprehensive strategy designed to reduce reliance on oil and foster growth in various sectors such as finance.

By June 2023, the Tadawul has risen to become the tenth largest exchange globally in terms of market capitalization, reaching SAR11 trillion, showcasing successful reforms and efforts to diversify the economy. With a market capitalization of around $2.7 trillion as of 2023, it stands out as the largest and most liquid stock market in the MENA region, making it more attractive for international investments.

Saudi Arabia has also placed emphasis on enhancing its debt capital markets through various initiatives that enhance infrastructure and trading regulations. These efforts have led to Saudi stocks being included in the MSCI Emerging Markets Index in 2019, contributing to greater visibility of Saudi equities among global investors and bolstering the country’s capital market development.

The Financial Sector Development Programme (FSDP) plays a critical role in driving these advancements by supporting regulatory changes and fostering growth within local markets with an aim to elevate the status of the Saudi Exchange on an international scale. The Financial Sector Development Program (FSDP) is a key component of Vision 2030’s overarching objectives aimed at boosting the Kingdom’s economic diversification efforts.

Recent regulatory changes have streamlined processes for foreign investors, making it easier for them to enter the market. These modifications allow institutions to offer discretionary portfolio management services to non residents and permit Qualified Foreign Investors (QFIs) to engage in securities investment through swap agreements without the need for regulatory notification. These measures have significantly boosted foreign investor inflows.

Furthermore, the launch of a derivatives market in 2020, featuring contracts linked to the MSCI Saudi Exchange 30 Index (MT30) and single stock futures (SSF), represents a significant advancement in expanding and deepening market offerings. This move provides investors with increased opportunities to manage risks effectively.

Vision 2030 is anticipated to lead to an uptick in debt issuance as government spending shifts towards large scale projects outside of the oil sector, with strong support and funding from the Public Investment Fund (PIF) for vital capital expenditures in strategic sectors. This transition underscores the need for a robust capital market capable of meeting the financing requirements of these major investments.

The development of a corporate debt market alongside an expected rise in bond and sukuk issuances, particularly from government related entities (GREs), will play a crucial role in funding initiatives under Vision 2030.
Banks and government related entities (GREs) are expected to take the lead in developing the local currency debt market of the country, getting involved before mid and small sized companies do, according to SP Global.

In general, Saudi Arabia’s equity and debt markets are going through notable changes as they adjust to the impacts of economic diversification efforts laid out in Vision 2030. These advancements not only position Saudi Arabia as a key financial hub in the region but also present significant growth potential by drawing in global investors and broadening investment options within the Kingdom.