Although there is a certain enthusiasm about choosing individual stocks listed on the Saudi Stock Exchange (Tadawul) – sometimes it is better to consider an ETF. By doing so, you will often invest in a basket of selected Saudi stocks in a variety of markets and sectors.
With net assets of almost $1B, The iShares MSCI Saudi Arabia ETF (KSA) is the largest international exchange-traded fund that seeks to track the investment results of an index composed primarily of Saudi stocks.
The fund is suitable for Saudi and foreign investors who want liquid and diversified exposure to a basket of 100+ top companies listed on the Saudi Stock Exchange.
Why invest in Saudi Stock Market via KSA?
- Liquid and diversified exposure to frontier and emerging market stocks, including Aramco, Al Rajhi, Alahli, SABIC, STC, Maaden, RIYAD, and more.
- Gain access to a virtually untapped investment opportunity starting at as low as $100.
- Open trades in any direction or use leverage to hedge your Saudi stock portfolio.
Investing in Saudi Stock Market via KSA – Key Facts
Are you looking to invest in the company's shares from a well-established country that is undergoing economic transformation? When the iShares MSCI Saudi Arabia ETF (NYSEARCA: KSA) launched in 2015, investors gained an easy way to access broad exposure to the Saudi stock market. The fund is a market-cap-weighted index that tracks the broad-based index composed of Saudi stocks. The ETF is traded on the NYSE and is an iShares product powered by BlackRock.
Cost
The fund's expense ratio comes in at 0.74%. This is higher than average for both the miscellaneous region category and what investors typically expect from a passive ETF. The ability to easily gain exposure to a country that has historically been inaccessible to foreign investors makes this relatively high management fee more palatable. The Franklin FTSE Saudi Arabia ETF (FLSA) is another option available for foreign investors, offering a respectable expense ratio of 0.39%. However, it is important to note that FLSA has a smaller asset size compared to the alternative. With approximately $5M AUM.
AUM, Liquidity, and Institutional Adoption
KSA is approaching $900M in total AUM (assets under management). The fund saw $7M in outflows in 2022, less than 1% of AUM - an impressive feat considering how challenging the year was for the Saudi stock market, US markets, and other capital markets all over the world.
FactSet Analytics Block Liquidity, a measurement that shows how easy it is to trade a $1M block of a security, rates KSA at a 4 out of 5. The average daily share volume over the last 45 days exceeds 400,000 shares with an average spread of 0.03%. Liquidity should not be a concern.
Institutional ownership has drastically increased in 2022, almost completely recovering from the 2020 sell-off and a lackluster 2021. According to the latest 13F filings, at least 18 institutional investors hold more than 250,000 shares of KSA.
Source: fintel.io
Sector Weights and Market Capitalization
The financials and materials sectors comprise two-thirds of the fund, followed by modest allocations to energy, communications, healthcare, and consumer staples.
Source: ishares.com
As of May 2023, KSA has 110 holdings traded on the Saudi Stock Exchange and an average market cap of $23.65B. As such it broadly fits in the large-cap bucket but contains a sizable allocation to small-cap companies, making up over 10% of the fund.
Source: Morningstar.com
ESG
KSA does not seek to follow an environmental, social, or governance investment strategy. Morningstar has assigned KSA a single globe, their lowest possible sustainability rating. MSCI rates KSA a 2.4 out of 10 for their ESG quality score. Sustainability-conscious investors should look elsewhere.
Growth and Valuation Metrics
Relative to the category and index, KSA boasts a higher sales growth percentage, cash flow growth percentage, and book/value growth percentage. This is at the cost of higher valuation multiples, but with a modest P/E of 13.99, there is still plenty of room for future expansion.
Source: morningstar.com
Just Another Oil Proxy?
Many investors view an investment in Saudi Arabia as a proxy for oil. They wouldn't be completely wrong, as oil production is still the dominant driver for the Saudi Arabian economy. However, with Saudi Arabia planning their 2023 budget for a sub-$80 barrel, and the country posting its first budget surplus in over a decade, there is less concern (relative to previous years) of Saudi Arabia having significant issues balancing its budget in 2023.
A strategic framework to reduce the country's dependence on oil and diversify into other sectors was initiated in 2016. This program, called Vision 2030, created a handful of new government entities that have been developing businesses in service sectors unrelated to oil. The conservative oil price expectation and major efforts underway to create new businesses and diversify the economy away from oil could catapult the Saudi stock market to new all-time highs in 2023.
Technical analysis
Viewing KSA through the lens of a technical analyst, there are reasons to be excited about shifting momentum. The relative strength index (RSI) is a popular oscillator used to indicate momentum. The divergence between the RSI and the direction of price action is generally seen as a critical signal that a reversal could be imminent. In the chart below, we can see that during the period between September and December, the price fell to a lower low while the RSI created a higher low. This was a sign that the strength of the downward momentum was waning - further confirmed by rising price action as we entered 2023.
If the downward trend is indeed weakening and possibly reversing, a price breakout above the declining resistance could be a great reason to enter a longer-term position.
A confirmed movement above 40 would be a strong reversal signal for the Saudi stock market.
Source: TradingView.com
Investing in the Saudi stock market via KSA – Key Risks
There are a few key risks potential investors should consider with respect to KSA. The first is oil dependency, as a collapse in oil prices would likely be detrimental to many underlying holdings. Despite efforts to diversify away from the country's dependency on oil, Saudi Arabia still relies on oil exports for a majority of its government funding. Falling oil prices would lead to a decrease in public spending, which would lead to higher unemployment. Oil exportation is also a major source of foreign currency for the country. Declining oil prices could result in an increase in import costs and lead to inflation.
Second, there are geopolitical risks as tensions with neighboring countries are difficult to predict, could escalate quickly, and are unique to the region. Saudi Arabia and Iran have a long-standing rivalry, mostly due to political and religious differences. And in the ongoing Yemen conflict, Saudi Arabia is leading a coalition opposing the Houthi rebels, who are aligned with Iran. Also, Saudi Arabia has had numerous disputes with Iraq and Kuwait involving oil production and borders.
Lastly, there's cyclicality - the sector exposure is overweighted in sectors that tend to be more cyclical in nature. With more than 66% of the portfolio invested in financials and materials, KSA's performance will heavily rely on the economy. KSA is positioned to perform very well during periods of economic growth, but will likely perform poorly if there were to be a recession.
Saudi Stock Market Portfolio Construction Considerations
Through Dec. 31, 2022, KSA has generated three-year annualized returns of 9.01% with a three-year standard deviation of 20.92%. These are not particularly attractive historical risk-adjusted returns for the Saudi stock market, and the volatility makes this strategy most useful for a small satellite allocation to most portfolios, not a core holding.
Investors in the Saudi stock market are always making decisions on where to spend their risk budget, which depends on many factors such as overall risk tolerance, time horizon, and investment objectives. A small sleeve of KSA in a traditional investment portfolio brings unique return potentials via this novel investment. The offensive, cyclical nature of the strategy would pair well with defensive holdings in the Saudi stock market.
KSA's top holdings in the Saudi stock market
The iShares MSCI Saudi Arabia ETF seeks to track the investment results of a broad-based index composed of Saudi Arabian equities. As for this moment, the most influential Saudi stocks are:
Al Rahji Bank
- Market Value: 99.84M
- Weight: 12.21%
- Shares: 4.6M
Al Rajhi Bank, a top Islamic bank, provides diverse banking services in Saudi Arabia. Its widely held shares (Tadawul:1120) on the Saudi Stock Exchange are favored by investors, making it a top choice in the Saudi Stock Exchange.
Saudi National Bank "Alahli Bank"
- Market Value: 66.604M
- Weight: 8.20%
- Shares: 6.9M
The Saudi National Bank (SNB), formerly Alahli Bank, is a top Saudi stock. Established in 1953, SNB is a leading financial institution with diverse services. Alahli shares are listed on the Saudi Stock Exchange under the symbol (Tadawul:1180), SNB stocks are favored by domestic and international investors.
Saudi Arabian Oil "Aramco"
- Market Value: 50.04M
- Weight: 6.16%
- Shares: 6.2M
Aramco, a Saudi-based global petroleum and gas company, went public in 2019 with a record-breaking IPO. Listed on the Saudi Stock Exchange under the symbol (Tadawul:2222), it's a top Saudi stock, highly valued worldwide, with diverse investors and inclusion in global indices and ETFs.
Saudi Basic Industries "SABIC"
- Market Value: 46.01M
- Weight: 5.66%
- Shares: 2.12M
SABIC (Tadawul:2010) is among the top Saudi stocks, known for its strong performance, diverse products, and strategic partnerships in the chemical sector. It garners investor interest, featuring in global indices and ETFs like iShares MSCI Saudi Arabic (KSA).
Saudi Telecom "STC"
- Market Value: 44.16M
- Weight: 5.43%
- Shares: 4.34M
STC (Tadawul:7010) is a top Saudi stock, dominating the telecom industry with its expansion and 5G investments. Widely held by investors, it's listed on the Saudi Stock Exchange and included in global indices and ETFs like iShares MSCI Saudi Arabia (KSA), reflecting its growth prospects.
Saudi Arabian Mining "Maaden"
- Market Value: 38.36M
- Weight: 4.72%
- Shares: 2.76M
Ma'aden, a Saudi mining and metals company founded in 1997, leads the industry with its diverse products, innovation, and global operations. Included in indices and ETFs like iShares MSCI Saudi Arabic (KSA), Ma'aden is among the top stocks listed in the Saudi market under the symbol (Tadawul:1211), known for its strategic partnerships and sustainable practices.
ALINMA BANK
- Market Value: 25.92M
- Weight: 3.19%
- Shares: 3.01M
Alinma Bank's commitment to innovation, customer-centric approach, and Sharia-compliant banking practices have contributed to its appeal among investors seeking exposure to the banking industry. The bank's emphasis on digital transformation and technological advancements further enhances its competitiveness and positions it as a leading player in the market.
SAUDI AWWAL BANK
- Market Value: 24.94M
- Weight: 3.07%
- Shares: 2.31M
First Saudi Bank is a Saudi joint stock company based in Riyadh in which the global banking group HSBC owns a small stake. The bank's origins go back to the British Bank of the Middle East which was acquired by HSBC in 1959. In response to restrictions on foreign ownership of banks in Saudi Arabia, the Arab Saudi British Bank (SAB) was established in 1978 to manage HSBC's branches and assets in the country. The First Saudi Bank, listed on the Saudi Stock Exchange under the symbol (Tadawul:1060), is highly regarded in the Saudi market and has gained global fame. With a diverse investor base and inclusion in various global indices and ETFs, it stands as a prominent entity in the financial sector.
RIYAD BANK
- Market Value: 24.78M
- Weight: 3.05%
- Shares: 3.48M
Riyad Bank, a top financial institution in Saudi Arabia, offers diverse banking services. With shares listed on the Saudi Stock Exchange under the symbol (Tadawul:1010), it attracts global investors and is included in indices and ETFs like iShares MSCI Saudi Arabia (KSA). As one of the best Saudi stocks, Riyad Bank is a popular choice for exposure to the Middle Eastern banking sector.
ACWA POWER CO
- Market Value: 19.35M
- Weight: 2.38%
- Shares: 165.43K
ACWA Power is a leading energy company based in the Kingdom of Saudi Arabia. It is a developer, investor, co-owner and operator of a group of power generation and desalinated water production plants with a presence in 12 countries across the Middle East, Africa, Central and Southeast Asia. The value of ACWA Power's portfolio of projects under operation and development amounts to US$82.8 billion, with a production capacity of 53.7 GW of power and 7.6 million cubic meters/day of desalinated water. Acwa Power is known for its innovative approach and sustainable energy solutions, and is listed on the Saudi Stock Exchange under the symbol (Tadawul: 2082). It occupies a prominent position in the Saudi market and enjoys global recognition for its contributions to the renewable energy scene. Thanks to its diverse investor base and inclusion in various global indices and ETFs, ACWA Power stands as a leader in the energy industry.
How to trade the Saudi stock market via KSA - Steps
In order to start trading the Saudi stock market via KSA, follow the steps below:
1. Sign up with CAPEX.com
No one can trade on the Saudi stock market directly, brokerage firms being the only ones that can offer access to the markets. If you are in the Middle East, choose an authorized company that is in the records of the Abu Dhabi Global Markets. A complete list of these companies can be accessed on the ADGM website.
One of the authorized firms is Key Way Markets Ltd (license no. 190005), which operates one of the leading trading platforms in the world, CAPEX.com.
2. Open a trading account
Once you have chosen the broker, you will need to open an account with it. Opening an account with a brokerage firm is akin to opening a bank account, with many firms offering the possibility of opening an online account.
With CAPEX.com you can open a Trading Account to gain access to 2,100+ leveraged products on shares, commodities, indices, cryptocurrencies, bonds, currency pairs and ETFs, including iShares MSCI Saudi Arabia ETF (KSA).
You can also open an Invest Account and buy 5.000+ shares with ownerships listed on 10 global stock exchanges.
3. Fund your account with money
Trading on the stock exchange is no longer an activity that only the rich can have access to. Today there are many companies that allow you to start investing with little money. With CAPEX.com you can deposit as low as $100 to open an account.
Once you have funded your account with an amount of money, you will be able to start trading on the stock exchanges.
4. Inform yourself and understand the financial instruments in which you invest
Do not confuse stock market investments with gambling. If you treat the stock market as a bet and if you invest in companies or financial instruments that you know almost nothing about, you will most likely lose money. However, if you invest in the Saudi stock market through an investment fund that tracks a stock index like MSCI Saudi Arabia IMI 25/50 Index, in the long term you will have more chances to Diversify your portfolio.
5. Choose your timeframe and open your position
Timeframes are important considerations when you’re deciding how to take a position on stocks.
Each Japanese candle presents the price action over a specific period, or to use traders’ jargon, a time frame. Most trading platforms’ charting modules allow you to view candles representing time frames ranging anywhere from a minute to a month.
The trend, meaning the overall price direction, that you’ll see on any chart depends greatly on your time frame. The longer the chart’s time frame, the more established and reliable the key price levels and other support/resistance indicators.
The 10 timeframes available on our award-winning platform enable a comprehensive detailed analysis of all minor price movements. More than 80 technical indicators and analytical tools, including graphic objects, provide detailed analysis of quote dynamics.
Should you invest in the Saudi Stock Market right now?
Before you consider investing in the Saudi Stock Market, you'll want to hear this.
If you're starting on your investing journey (or if you want a sanity check), please read through our how-to-invest in stocks guide. It goes through all the basics, from how to get started to how to determine your personal investing strategy, to how much of your money to invest in stocks.
Although analysts are bullish on the top Saudi stocks, they might not all be the best choices for investors who don't yet have established and diversified portfolios. Even the most stable companies on this list aren't immune to volatility in their stock prices, especially over short periods.
If you're just getting started, you'll also want to consider a well-diversified option like the iShares MSCI Saudi Arabia ETF (NYSE ARCA: KSA).
Free resources
Before you start investing in the best stocks for your portfolio, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you to become a better trader or make more informed investment decisions.
Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading.