The stock market witnessed a significant decline in performance over the past two weeks, with the market capitalization of listed shares suffering substantial losses of approximately 135.39 billion riyals. This drop comes amidst a wave of volatility affecting financial markets, reflecting a state of anticipation and caution among investors and traders, as the market reacts to a range of local and global economic variables.
Economic context and reasons for the decline
These losses in market capitalization are a natural reflection of the correction cycles that financial markets undergo after periods of growth or stability. Markets dealing in riyals, particularly the Saudi Stock Exchange (Tadawul), are typically affected by global oil price movements due to the close link between energy revenues and the overall economy. Furthermore, global monetary policies, such as the US Federal Reserve's interest rate decisions, play a pivotal role in directing liquidity; higher interest rates usually draw liquidity away from equity markets (high-risk assets) and towards deposits and bonds (low-risk assets).
The impact of geopolitical factors and the global economy
This downturn cannot be isolated from the global economic landscape, where rising global inflation and recession fears are weighing on investor sentiment across both emerging and developed markets. These factors combined are leading to what is known as “risk aversion,” prompting major investment portfolios and institutional funds to rebalance their positions. This explains the selling pressure that wiped out more than 135 billion riyals in market capitalization in a short period of just 14 days.
The importance of market value and future prospects
It is important to note that market cap losses are book losses reflecting a decline in the valuation of listed companies based on their last closing price, and do not necessarily indicate operating losses. Despite the severity of the recorded figure, financial markets possess significant resilience and a capacity for recovery, especially given the strength and robustness of the national economy and the massive development projects that bolster long-term investor confidence. Analysts believe that these declines may create attractive investment opportunities for long-term investors to acquire stocks with strong operating returns at lower prices, paving the way for a future rebound that will restore balance to the general index.
