Saudi Arabia has undertaken several reforms and market infrastructure investments over the past decade to grow its capital markets. These reforms are crucial to further advance its Vision 2030 goal of increasing its economic, social, and cultural diversification. The stock exchange Tadawul's inclusion in major emerging market equity indices in 2019 was a key milestone and over the past decade its market capitalization has increased 463%.

Yet in terms of market capitalization, the market is still dominated by a relatively small number of government-related entities (GREs), and market liquidity as measured by trading volumes remains relatively low, albeit highest in the GCC region. Foreign investors' holdings on Tadawul continue to rise but remain low at about 4.2% of the market or about 11% of the free float as of year-end 2024.

S&P Global Ratings believes the Saudi authorities' efforts to further develop Tadawul will help attract domestic and international capital, increasing market liquidity for the long term. This, alongside large funding requirements for Vision 2030 projects, should continue to stimulate the exchange's growth. That said, we are mindful of current risks to global macroeconomic growth, which could weigh on all equity markets. We also believe Tadawul's expansion can promote further transparency for nonsovereign entities, given the increased disclosure requirements and supervision required by investors.

Tadawul Will Play A Larger Role In Saudi Arabia's Economic Transformation

Equity markets will allow the economy to diversify sources of funding for the Vision 2030 program. As the implementation of Vision 2030 speeds up, even with the recalibration of some projects, funding needs are significant: giga- and mega-projects are estimated to cost more than $1 trillion.

Vision 2030 projects will require raising funds across several sectors.   We project that the central government and the Public Investment Fund (PIF) will raise new debt of about $60 billion or 4.9% of GDP annually over 2025-2028. The government is also actively promoting investments from large corporates, especially GREs, aiming to channel Saudi Arabian riyal (SAR) 5 trillion (approximately $1.3 trillion) into various sectors through the "Shareek" (partner) program. Funding sources remain concentrated on debt for now.

We expect total external debt in Saudi Arabia will increase to about 45% of GDP, from 29% in 2023. We also forecast robust credit growth for banks of about 10%, driven primarily by corporate lending linked to Vision 2030.

However, these will likely be insufficient to meet all the funding requirements. Growth in equity markets will enable companies and financial institutions to allocate more capital toward investments while managing leverage. Foreign direct investment inflows have been slow to pick up, and remain below 2% of GDP.

Tadawul Is Growing Fast, And Gradually Diversifying

Tadawul's market capitalization increased 463% to about $2.7 trillion as of Dec. 31, 2024, from about $483 billion at year-end 2014 (see chart 1). One of the key milestones was the IPO of state-owned national oil company, Saudi Aramco, in 2019, which raised $29.4 billion, significantly elevating Tadawul's market capitalization and global standing. Even if we exclude Aramco's year-end value of $1.8 trillion, Tadawul's capitalization was still up by about $427 billion.

There is a major push to get Saudi companies listed.   Between 2014 and 2024, Tadawul's main market hosted 91 IPOs for an aggregate offering value of about $65 billion, even excluding other listings such as Aramco's secondary offering of about $11.2 billion in July 2024. As a result, the number of listed issuers on Tadawul's main market grew to 247 by year-end 2024 from 169 in 2014 (see chart 2).

Chart 1

Chart 2

Tadawul now ranks as one of the largest exchanges among emerging markets, in terms of its market capitalization.  It is also the largest emerging equity market outside Asia (see chart 3). However, despite strong growth over the past decade, we consider it to be still at an earlier stage of development relative to some major global markets. As of year-end 2024, about 67% of the exchange's market capitalization came from Aramco's $1.8 trillion value, while the seven largest issuers represented more than 80%. Of these seven issuers, other than Al Rajhi, all are GREs (see chart 4).

Chart 3

Chart 4

Despite the IPOs of many private-sector companies, public-sector entities represent the bulk of new listings.  These entities have generated about $44 billion of the estimated $65 billion of aggregate IPO value over the past decade. For example, in addition to Aramco, Ades Holding and ACWA undertook IPOs of $1.2 billion each; Tadawul raised $1 billion in its own offering, in addition to other public-sector entities.

In terms of trading volume, Tadawul is smaller than the other major equity markets.   We believe this is partly because Saudi Arabia's GREs, such as the sovereign wealth fund, the PIF, and public pension fund GOSI, are among the main long-term investors in major companies in Tadawul and typically not frequent traders. The professional asset management sector is relatively small, albeit growing fast. For example, as of April 17, 2025, GREs' holdings represented close to 64% of Tadawul's total capitalization and about 13.8% of the free float. Saudi mutual funds and institutional discretionary portfolio managers held 3.8% of the total capitalization, or 7.3% of the free float.

Foreign shareholding remains limited.   Despite gradual growth in international investors' participation in Tadawul since the market opened to foreigners in 2015, foreign ownership of companies' equity remains low (see charts 5 and 6). As of year-end 2024, non-Saudi investors represented about 11% of free float or 4.2% of Tadawul's total value.

Chart 5

Chart 6

When we look at certain other emerging markets, we see foreign shareholding levels well above these levels. For example, foreign investors held about 54% of B3 (Brazilian Stock Exchange)'s market capitalization in 2024, and this figure was about 36% for Borsa Istanbul as of April 28, 2025. Closer to Saudi Arabia, in the Gulf Cooperation Council region, foreigners held 21% of Dubai Financial Market's capitalization as of year-end 2024. Increasing foreign participation will be important in creating funding opportunities for Saudi Arabia's strategic sectors.

Regulatory Initiatives Could Support Liquidity Over The Long Term

Since 2015, we have seen several market-related initiatives from the Saudi authorities, particularly from the Capital Markets Authority and Tadawul among others to develop the equity market. These include:

• Opening the market to international institutional investors;
• Investments in market infrastructure;
• New platforms and products; and
• Promoting improved disclosure and governance.

For more information see "Saudi Arabia's Debt Market: Ready For Takeoff," published on June 19, 2023 on RatingsDirect.

Pension reforms can advance Saudi equity markets.   The authorities have implemented several important changes to the country's pension system in recent years. Pension systems are important funding and liquidity providers as long-term investors in capital markets worldwide. Over the past few decades, we have seen many examples of pension funds playing a key role in the development of local capital markets.

In 2021, Saudi Arabia's private-sector pension fund was merged with GOSI, the public-sector pension system.   Like the PIF, GOSI is also an important investor in Saudi Arabia's equity market. According to 2023 disclosures, GOSI had about $129 billion (about 12% of GDP) invested in listed Saudi equities.

Saudi authorities announced additional reforms in 2024, such as increasing the retirement age to 65 from 58.  It also increased the required contribution period to qualify for early retirement to 30 years from 25 years, which we believe will increase the average contribution period and hence investable period for GOSI. Given GOSI's size and investments in the local equity market, this will support long-term local demand for Tadawul and its liquidity.

Chile is a good example of a successful pension fund reform creating strong inflows of long-term capital into the local capital markets, including equities. In 1981, it became the first country in the world to adopt a fully privatized pension system based on defined employee contributions, which replaced a defined benefit plan. These funds had a well-defined mandate to invest in the local capital markets. This created steady, long-term demand for equities, resulting in strong growth for the country's capital and equity markets (see charts 7 and 8) and the underlying trading liquidity.

Chart 7

Chart 8

Amendments to investment law could encourage greater international participation.  In August 2024, the Ministry of Investments made major updates to Saudi Arabia's foreign investor law. The changes further align the treatment of foreign investors with domestic investors, strengthen investor protection, and ease regulatory restrictions on foreign investor licensing requirements. They also provide for more-transparent dispute resolution, mediation, and arbitration processes, among other updates. The revised law also provides a more transparent framework for investment incentives. Although a key objective of the new regulation is to improve foreign direct investment flows, we expect it will also support inflows to capital markets, including to Saudi equities.

We saw similar initiatives between the mid-1990s and 2000s in Brazil, which aimed to liberalize the country's market and attract foreign investment.   For example, in 1996, via a constitutional amendment, the distinction between domestic and foreign capital was eliminated and foreign investors were allowed to invest in formerly restricted sectors. Brazil also undertook several other measures such as strengthening corporate governance practices. These included creating the Novo Mercado in 2000 for companies with stronger corporate governance practices under the Bovespa Stock Exchange (now called B3). This new listing segment hosted a significant number of new IPOs, including of large GREs, which attracted significant foreign investment (see chart 9).

Chart 9

Brazil also introduced tax incentives and regulatory changes that contributed to an increase in foreign participation in the domestic equity market. Tax benefits included exemptions on capital gains and zero tax for non-resident investors for specific investments. In addition, in 2019, a change in law gave the central bank the power to authorize foreign investors to hold equity in local financial institutions.

A Developed Equity Market Could Influence Credit Strength

Tadawul, like global equity markets, provides entities with a platform to raise long-term funding to invest in projects and capitalize on growth opportunities. They also allow companies to manage their capital structures without increasing leverage. Equity financing reduces reliance on high-cost debt and diversifies companies' funding sources.

As the Saudi Arabian government rolls out its Vision 2030 program and international investors enter the market, we anticipate a rise in trading activity. This should bode well for Tadawul and the country as a more liquid equity market allows shareholders to monetize their holdings, and raise liquidity. A market with a well-diversified number of sectors also creates avenues for investment in the local economy, supporting long-term economic growth.

Related Research

• Saudi Arabia Ratings Raised To 'A+' On Sustained Socioeconomic And Capital Market Reforms; Outlook Stable, March 14, 2025
• Saudi Arabia's Debt Market: Ready For Takeoff, June 19, 2023
• GCC Asset Sales Will Increase Transparency, Broaden Funding Sources, And Support Capital Market Development, March 21, 2022
• Corporate Governance Practices In The GCC, March 15, 2021