Reasons for YTD TASI drop; key grabs, challenges going forward: Alawwal Capital

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Alawwal Capital underlined several factors behind the drawdown in the year-to-date (YTD) performance of the Main Market (TASI), most notably the persistently high interest rates, weakening oil prices (Brent shed almost 10% since 2025-start), the summer seasonal dips, and traders' fears of geopolitical risks.

Reasons for Declines

In its recent report, Alawwal Capital said Q2 earnings of Saudi-listed firms dropped year-on-year (YoY), pressured by weaker oil prices, softer petrochemical performance due to cyclical downturns and oversupply in Asian markets, and global and local demand erosion from higher interest rates.

It added that investor flows shifted, with retail moving into high-yield, risk-free instruments such as Saudi banks’ Tier-1 issuances that offer 5.5%-6.5% in returns. Demand for time and savings deposits climbed to the highest since March 2009 in July 2025.

Liquidity has been weak since early 2025, not only due to sukuk, Murabaha and deposits, but also heavy allocations to IPOs and rising exposure to US equities, where Saudi trading hit a record in Q2 of this year.

Summer holidays also weighed on retail activity. Average daily trading value fell to $1.5 billion (SAR 5.63 billion) in Q2, reflecting subdued appetite for local stocks.

Outlook: Opportunities and Challenges

Alawwal Capital said outlook mostly point to at least a 25-bp Fed rate cut this week, followed by as many as 10 other reductions through end-2026.

China has begun tackling petrochemical oversupply, while Western agencies still predict oil price declines by 2026, though Alawwal Capital said these forecasts are biased. OPEC+ supply gains led by Saudi Arabia are hurting US shale, while risks from sanctions on Iran or Russian oil remain unpriced.

Saudi Arabia’s higher oil output, alongside potential supply shocks, could boost Aramco results and lift overall market performance. Lower rates would also support petrochemicals and other sectors.

Alawwal Capital highlighted Saudi Arabian Oil Co. (Aramco), ACWA Power Co., Saudi Electricity Co. (SEC), Riyadh Cables Co., Saudi Telecom Co. (stc), Etihad Etisalat Co. (Mobily), Mobile Telecommunication Company Saudi Arabia (Zain KSA) and Saudi Arabian Mining Co. (Maaden) as likely AI infrastructure beneficiaries. Healthcare, education, banking and financial firms may also capitalize on AI adoption, though impacts are harder to quantify.

For investors wary of oil price swings and biased forecasts, Alawwal Capital pointed to non-oil stocks, noting strong performance under Saudi Vision 2030’s diversification push.