The worst year for Saudi stocks in a decade is worrying investors

In a year in which emerging stock markets rebounded strongly, the Saudi stock market remained a clear laggard. Investors say next year should not be expected to be significantly different. Investors don’t see much incentive to buy Saudi stocks, with oil prices remaining stagnant and likely to continue falling over the next year, with commodities trading company Trafigura forecasting a “huge glut” in oil. Citigroup analysts recommend that investors reduce the relative weighting of Saudi stocks, saying that the shares have “underperformed” in terms of earnings growth and momentum. Pressure on Saudi stocks: “Saudi stocks are still somewhat unattractive,” said Nenad Dinjic, emerging markets equity strategist at Bank Julius Baer & Co. He explained: “First, the Saudi stock market is still closely linked to oil prices, which may remain low in 2026. Second, it lacks support from most of the emerging dollars.” Also read: The Saudi stock market falls under pressure from the energy sector, with continued poor liquidity adding to this pessimism. The decline in the Saudi financial market index this year by 11%, which is the biggest decline since 2015. Growth in profits of Saudi companies The growth in profits of listed companies is also expected to be weak, as analysts estimate a rise of only about 2% in profits next year, compared to 13% for companies listed in the MSCI index. Saudi Arabia, the world’s largest oil producer, is under pressure due to a 17% drop in Brent crude prices, which is limiting public spending and affecting corporate profits. You might be interested in: Wall Street Banks Expect Further Drop in Oil Prices in 2026. Higher Sensitivity to Dollar Movements. Additionally, Saudi stocks have proven to be negatively impacted when the US dollar moves in an unfavorable manner this year, according to Citi analysts David Grauman and Rahul Bajaj. “There is no short-term catalyst that will push Saudi stocks higher,” said Sebastian Kahlfeld, portfolio manager at DWS Investment. He added that while valuations have become more attractive, this improvement “is not enough to cause a fundamental revaluation of stocks.” The Saudi stock market index currently trades at around 15 times expected earnings, below its 10-year average of around 16 times, but still higher than shares in the emerging markets benchmark as well as the Dubai Financial Market Index. Another view But not everyone is pessimistic about the Saudi stock market, as Junaid Ansari, director of investment strategy and research at Kamco Invest, said the Saudi market “has witnessed more intense selling than necessary due to exaggerated concerns about oil.” Bank shares are expected to rise on increased lending and profits. Amundi, the largest asset management company in Europe, expects the Kingdom’s shares to largely follow the oil market in the short term unless the Kingdom implements its plans to remove restrictions on foreign ownership of shares. “This could be a catalytic event, especially for stocks with higher free float, such as financial stocks,” said Marcin Vijka, head of equities for Central and Eastern Europe, Middle East and Africa at the company. These changes are not expected to occur during the first half of 2026. Saudi stocks rose in September after Bloomberg reported that the kingdom may soon ease restrictions on foreign ownership. The gains were erased after a regulatory official said policymakers had not yet decided whether to remove the current ownership cap or gradually raise it through 2026. Also read: Al-Quwaiz: Review of foreign ownership of Saudi shares to be resolved in 2026. reduction in profits seen due to macro and micro economic factors. Both. He added that the “inconsistent” communication about the timing and method of Saudi Arabia’s plan to open its market to foreigners is not supporting an improvement in share prices or attracting new investment. This may interest you: After their investments jumped 3 times in a decade… what does the liberalization of the ceiling on foreign ownership mean in the Saudi market? He concluded by saying: “We will not increase the size of our investments in Saudi stocks before 2026. The construction of our investment portfolios will depend on the profit expectations of individual companies.”