Saudi Stocks Offer Promising Investment Opportunities Despite July Decline

04/08/2025 02:46 AST

Despite a downturn in July, financial analysts view the current levels of Saudi Arabia's stock market as an attractive entry point for long-term investors, as signs emerge of investor confidence in valuations.

The benchmark Tadawul All Share Index (TASI) fell 2.18% in July, closing at 10,920.27 points, with market capitalization losses amounting to 80.48 billion riyals ($21.46 billion).

Yet analysts interpret this decline not as a sign of weakness, but as a reflection of what they describe as a "dry-up in selling liquidity," suggesting investors see current prices as compelling for accumulation rather than divestment.

Much of July's market pressure stemmed from selling in heavyweight stocks. Financial analyst Abdullah Al-Jubaili told Asharq Al-Awsat that the drop in the index was largely driven by declines in key names including ACWA Power, Aramco, SABIC and Al Rajhi Bank.

The correction pushed several companies to new annual lows, which analysts say enhances their appeal to buyers.

All sectors closed the month in the red, with the exception of the communications and IT sector, which posted a marginal 0.01% gain. Utilities led the losses with an 11% drop, followed by basic materials (down 1.6%), energy (0.35%), and banks (0.25%). This broad-based weakness, analysts say, signals a potential revaluation opportunity across the board.

Trading activity rose notably in July. Total traded value reached 107.55 billion riyals, up 12.43% from 95.66 billion riyals in June. Average daily turnover stood at 4.68 billion riyals.

Trading volume also surged by nearly 90%, climbing to 8.6 billion shares in July from 4.54 billion the previous month. The average number of shares traded per session reached 373.7 million.

Analysts maintain that the market retreat is not cause for concern. Al-Jubaili said the recent liquidity drought, especially on the selling side, indicates investor conviction that current valuations are worth holding - not selling. Should liquidity improve in the coming weeks, a shift in the trajectory of leading stocks could follow, lifting the broader index.

He added that investors are increasingly eyeing the basic materials, energy and utilities sectors for their attractive dividend yields and low price-to-earnings ratios. Al-Jubaili expects August to mark the bottoming out of several blue chips, coinciding with the index approaching key support at 10,700 points. A bounce from this level, followed by a sustained move above the 11,000 mark, could set the stage for a test of the 11,500 resistance level during the month.

Market expert Obaid Al-Muqati echoed that view, describing current market levels as "ideal for accumulation." He said the market has been experiencing rotational pressure on blue-chip stocks for nearly a year, aimed at keeping the index within a 1,000-point range to facilitate long-term accumulation.

Al-Muqati added that valuations remain attractive across many sectors, including cement, petrochemicals, basic materials, energy, utilities and real estate investment trusts (REITs). He believes these sectors offer solid long-term potential and expects the index to trend higher in the coming quarters, in line with the growth trajectory of the Saudi economy.