TASI’s quiet month hid a loud rotation

TASI closed almost exactly where it started in May. The main market’s index ended the month at 11,187.66, down a slim 0.55%, with SAR 125.5 bn changing hands across 269 traded names and total market cap holding near SAR 9.94 tn. The flat headline hides an unusually messy story underneath — oil-leveraged cyclicals ripped higher, while the banks — usually the index’s ballast — got dumped.

What the headline missed: May was dominated by the Strait of Hormuz disruption and a spike in regional war risk, which dragged the whole market onto the crude tape regardless of what individual companies were doing. “You had roughly half the market behaving like a commodity derivative and the other half quietly doing its job,” Aseel Al Aranki, research and analysis department manager at River Prime, tells EnterpriseAM.

The problem? Investors only saw the headline number, and the domestic story was drowned out. Banks, telecoms, healthcare, construction, and services names held up fine on the fundamentals. “On any normal month, TASI is not the pure oil play that outsiders assume it is. The long-run correlation between TASI returns and crude oil is positive but modest,” she says.

But May wasn’t a normal month. Some 10.5 mn bbl / d regional production was shut in. “In that kind of environment, you're no longer just watching oil. You're watching whether missiles land near Saudi infrastructure. Those are two very different conversations,” Al Aranki added.

Where the action was: Energy and materials names led the gainers. Petro Rabigh topped the board, up 40.84% to SAR 14.83, followed by Middle East Specialized Cables (+35.64%), Steel Pipes (+30.39%), Arabian Pipes (+24.96%), and East Pipes (+23.75%). On the downside, healthcare provider Care led the fallers with a 13.91% decline, while Saleh Al Rashed (-13.12%), media group SRMG (-12.65%), Almajed Oud (-12.24%), and Tadco (-11.44%) rounded out the bottom five.

Banks took the biggest hit

Saudi Awwal Bank (SAB) fell 8.7%, Saudi National Bank dropped 6.1%, and even sector heavyweight Al Rajhi — still the most-traded stock by value at SAR 9.55 bn — slipped 3.6%. Al Aranki points to three pressures arriving at once

#1- Margins: Six of the nine major banks have trimmed their net interest margin guidance, squeezed between falling loan yields and stubbornly high competition for deposits, while loan growth cooled from 9.6% in January to 8.8% in February. “When volume slows and margins compress simultaneously, there’s nowhere to hide,” she said.

#2- An uneven 1Q: The sector’s headline income looked healthy (up 11%), but SAB and Banque Saudi Fransi’s corporate-segment earnings fell, and the top three lenders are now generating around two-thirds of all corporate income — a concentration that makes investors twitchy, according to Al Aranki.

#3- Indirect credit risk: banks with heavier exposure to construction and project finance got repriced as Hormuz-related supply disruptions fed through to corporate borrowers. That, Al Aranki argues, explains why SAB (a more commercial-lending-heavy book) fell harder than Al Rajhi, whose sticky retail deposit base offered some shelter.

What to watch

June hinges on Hormuz: If traffic resumes gradually this month, the oil, shipping, and petchem trade that powered May could deflate just as fast. The EIA sees Brent drifting toward USD 89 / bbl by 4Q, a roughly 16% slide.

Al Aranki flags where that could bite hardest — petrochemicals, whose feedstock edge narrows as energy costs normalize, and Aramco, as a softer Brent revives the dividend-sustainability math. The safer ground is the domestic consumer complex — telecom, healthcare, and food retail. “These trade on Saudi demographics and disposable income, not the crude price,” Al Aranki says.

The bigger risk? Saudi Arabia has deep reserves and ready access to debt markets, but TASI is priced partly on the belief that Vision 2030 has bottomless backing and that Aramco's dividend is untouchable. The single biggest risk into 2H is that one or both of those narratives gets tested, according to Al Aranki. “Narratives under pressure are enough to reprice an entire market, even when the underlying economy remains sound.”