After a summer rebound, the Saudi stock market is currently experiencing volatility as regional tensions increase. The Riyadh exchange has seen its worst start to a fourth quarter in years. Over the first three trading days of October, the Tadawul All Share Index fell 2.2%. This decline comes as Israel intensifies its actions against the Iran-backed Hezbollah, considering missile strike retaliations against Tehran.
Despite the index's previous resilience to escalating tensions and low oil prices, the recent downturn has erased all of this year's gains. The critical question is whether the market can withstand further conflict escalation and oil prices that are significantly below the levels needed to fund Saudi Arabia's economic diversification efforts. For many investors, the answer is negative, at least in the short term.
Ryan Lemand, CEO of Neovision Wealth Management, noted that investors are typically frightened by wars and geopolitical conflicts. Stock markets in countries close to the escalating war might experience capital outflows. Jassim Al-Jubran, Head of Sell-Side Research at Aljazira Capital, suggests that the market will likely remain under pressure in the short term, predicting the Tadawul index could drop to 11,380 points, a decline of about 5% from the last closing. However, he also mentions that the index might rise by the same margin if regional conditions improve.
Strategists from HSBC Holdings have downgraded their rating of Saudi Arabian stocks from "overweight" to "neutral," citing the short-term risks associated with increased geopolitical risk and low oil prices.
