Saudi stocks pull back on geopolitical risk and higher rates, not a structural shift

TASI faces a risk-off pullback as geopolitics and higher rates weigh: The main market wrapped up 9M 2026 in the red, closing last month down 9.2% y-o-y at 10.4k points and about 10% below its peak in April, according to its 9M 2026 report (pdf). September did most of the damage, with only SAR 79.15 traded and the index falling 6.2% m-o-m to close at its lowest month-end level of the year.

Activity cooled with it: Value traded fell 11.8% y-o-y to SAR 894.25 bn over the first nine months of the year and the number of trades dropped 13.5% to 79.5 mn, taking average daily value traded to SAR 4.89 bn from SAR 5.48 bn a year earlier. Market capitalization slipped 2.1% y-o-y to SAR 9.12 tn.

What drove September: Geopolitics, higher rates and foreign selling, Alkhair Capital assistant portfolio manager Fardeen Akhtar tells EnterpriseAM. “Regional tensions clearly increased the risk premium investors were willing to attach to Saudi equities,” he said. Foreign firms were net sellers of around SAR 4.33 bn during the month, and SAMA’s 25 bps repo rate hike to 4.50% made liquidity and fixed income more attractive against equities.

February’s opening hasn’t produced steady inflows yet: Foreign institutions accounted for about 37.2% of September purchases and 42.6% of sales, Akhtar said. Economist Ahmad Chreim called the foreign selling “modest,” and said the real test of how the opening reshapes price-setting will come “over the next several quarters, not a single turbulent month.”

A risk-off phase rather than a shift: Investors are “simply becoming less willing to pay aggressive valuations,” Akhtar said, with geopolitical uncertainty, higher rates and weak post-IPO performance all sharpening valuation sensitivity. Strong companies can still raise capital, but pricing will need to be more realistic. Chreim put the lighter turnover down to investors “taking a more measured, wait-and-see posture.”

Five sectors are still up YTD: Ins. (+11.1%), energy (+6.7%), banks (+2.4%), real estate management and development (+1.9%) and pharma (+1.3%). Media and entertainment is down 54.2% and transportation 22.9%.

Behind the gap: Banks have healthy credit quality and lending and deposit growth, insurers are benefiting from premium growth and stronger underwriting, and pharma holds up because healthcare demand is “less cyclical,” Akhtar said. The weakness in media and transportation reflects “earnings deterioration rather than just lower valuations.” Chreim expects both to stabilize “as regional conditions ease.”

Where that leaves valuations: “TASI, excluding Aramco, is trading at around 17.9x earnings and 1.9x book value,” Akhtar said. “I would say the market is more reasonably valued after the correction, but I wouldn't describe the whole market as cheap. So I would call Saudi equities selectively attractive rather than broadly undervalued.” His base case for the quarter is stabilization and volatility rather than a broad rally, with 3Q earnings, foreign flows, rate expectations and turnover the things to watch. “If earnings remain resilient, oil exports stay stable, foreign selling starts to reverse and turnover improves, I think there is room for a rerating.”

Nomu’s listing pipeline has all but stopped: The parallel market saw one IPO in 9M 2026, against 21 a year earlier, leaving 124 listed companies. The index closed at 21.3k, down 16.4% y-o-y, with market capitalization down 30.9% to SAR 33.9 bn and value traded down 42% to SAR 3.91 bn. It has fallen for three months running.

Sukuk and bonds were muted but growing: The index closed at 904.7, its lowest of the year and down 1.2% q-o-q, while total issuance rose 3.1% q-o-q to SAR 773.49 bn and value traded rose 10% q-o-q to SAR 2.04 bn. Corporate paper made up 96.2% of trades but only 36.5% of value, with government paper at 63.5% of value on 3.8% of trades.