Saudi stocks face renewed pressure from capital costs

The Saudi stock market ("TASI") experienced a significant decline of 1%, closing at 10,579 points. This marked its biggest daily drop in about two weeks, following the rebound seen in the previous session. More than 207 components of the index declined, while 50 increased and the rest remained stable, leading to a 10.2% decrease from its highest levels of the year. The rise in capital costs—particularly the increase in the yield on Saudi 10-year bonds to around 5.96% and the short-term interest rate (SAIBOR) rising to 5.21%—exerted double pressure on the market, raising financing costs and investor expectations for the required returns on stocks. Additionally, the decline in leading stocks such as Aramco and the banks—responsible for about 70% of the losses—helped reinforce the downward trend, amid expectations of weakened risk appetite in the market. Despite the price declines, the increased discount rate indicates that the market is no longer considered cheap from a valuation perspective. Trading volume rose by 30% to 3.2 billion riyals, but liquidity remains below the averages seen earlier this year, signaling weak short-term capital inflows.

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