In the dynamic world of global finance, the Saudi stock market found itself lagging behind emerging market benchmarks for the first time since 2020. This shift has sparked discussions among analysts who speculate on a potential turnaround as we approach the new yearDespite these challenges, there are glimmers of hope among those who are closely monitoring the financial landscape.

It's crucial to acknowledge that Saudi Arabia has not been caught in the crosshairs of rising U.Strade tariffsThis situation grants the Saudi market a unique edge over other markets similarly impacted, such as MexicoAlthough the valuations of Saudi stocks do not currently scream 'bargain', they have seen a decrease from the highs reached earlier this year, indicating a phase of readjustment.

Thea Jamison, Managing Director of Change Global Investment LLC, expressed optimism about the Saudi market in 2025, highlighting the expected influx of investment portfolio funds from China

"What stands out is that valuations are becoming increasingly attractive once again," she remarked, suggesting that there are silver linings amidst the market adjustments.

This year has been a tough one for the Saudi Arabian benchmark stock index, the Tadawul All Share Index, which has experienced approximately a 1% declineIn stark contrast, the MSCI Emerging Markets Index has soared over 7%. This disparity is largely attributed to Saudi Aramco, the national oil giant, which has seen an 11% dip in its stock prices due to OPEC+ related oil production cuts and a significant secondary stock sale amounting to $12.35 billion.

Moreover, countries like Saudi Arabia that tie their currencies to the U.Sdollar are less susceptible to the volatility brought on by a strengthening dollarNenad Dinic of Credit Suisse stressed the importance of this dollar peg, as it allows Saudi monetary authorities to lower interest rates in sync with the U.S., providing crucial economic stimulus

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"In the current environment dominated by tariff worries and a consolidating dollar, the market is seen as a low-risk investment," he stated, highlighting investor sentiment in turbulent times.

Dinic's focus is particularly on sectors that align with the Saudi Vision 2030 initiative, which aims to diversify the economy beyond its heavy reliance on oil revenueThis ambitious governmental push has sparked a surge in spending on large-scale projects that are expected to ripple across sectors such as consumer spending, tourism, and constructionAs demand for credit gradually increases, banks are poised to benefit, establishing a pivotal role in facilitating Saudi Arabia's economic transformation.

However, with every silver lining comes a cloudThe specter of low oil prices hovers over the market like a gray shadow, presenting a potential barrier to growthThe energy and materials sectors constitute a significant 29% of the index, and activities tied to crude oil account for nearly half of the total economy

Currently, oil prices hovering around $72 per barrel fall short of what the Saudi budget requires for balanceFurthermore, market predictions suggest that a significant rise in oil prices next year is unlikely, adding layers of uncertainty to Saudi market forecasts.

Junaid Ansari, Head of Investment Strategy at Kuwait's Kamco Invest, acknowledged the impact of oil prices on market sentiment, but he finds some reassurance in the notion that the long-term price range of $70-$75 per barrel has already been priced into the marketHe argues that the current valuation of many large Saudi companies remains robust, indicating that the market is presently undervalued.

The Tadawul All Share Index currently exhibits an expected price-to-earnings ratio of around 15 times, which is notably lower than its five-year average of 18.5 timesJust a few months prior, this ratio stood at a markedly higher level, highlighting the scope for potential appreciation as the economic landscape evolves.

Even for fund managers who are cautiously eyeing the oil market, such as Fergus Argyle from EFG Asset Management in the UK, there is an undercurrent of optimism