Saudi market correction offers 'very attractive' entry point: Al Rajhi Capital

By Staff Writer

The recent correction in the Saudi stock exchange, coupled with lower valuations, has created more attractive entry points for investors, according to Alrajhi Capital.

“We see an increasingly favourable risk/reward thesis. The combination of lower valuations and resilient domestic fundamentals offers attractive opportunities for investors,” the research house said in a note.

Despite staying resilient in the initial phase of the US-Iran conflict, the benchmark index TASI saw a sharp correction recently, especially in October.

As of October 25, the index lost slightly over 1,000 points in about two weeks and touched levels last seen in 2021. Although the market recovered a day later (October 26) it remains down 7% year-to-date and 24% from the recent highs seen in 2024.

According to the report, TASI has diverged from oil prices for the first time in several years, suggesting a risk premium and near-term corporate earnings taking precedence over long-term fundamentals.

“This correction has created very attractive entry points into Saudi equities,” Alrajhi Capital stated.

The trailing price-to-earnings ratio for TASI has now touched 2018 levels and the premium over MSCI Emerging Markets has now reduced to 6% from a long-term average of 24% and the highs of 60% in 2022.

“The recent developments carry a tinge of uncertainty; however, the risk premium is now 24% (MSCI KSA compared to pre-conflict), 1000 basis points higher than that for MSCI GCC-ex KSA.”

The report said Saudi Arabia’s economic and operational resilience remains an important source of confidence, adding that Aramco’s diversified export infrastructure and operational flexibility support its ability to adapt to changing conditions.

Alrajhi Capital expects the oil outlook to provide further support, as rebuilding depleted inventories could support oil demand and prices over an extended period.

(Editing by Seban Scaria seban.scaria@lseg.com)