It is a well-known fact that Saudi Arabia plays a major role in the oil markets. It is a key member of the Organization of the Petroleum Exporting Countries (OPEC), and Saudi Aramco, the national petroleum and natural gas company that produces and manages billions of barrels of Saudi oil, including approximately 260 billion barrels in reserves.
However, little is known about the emerging Saudi Arabia stock market, known as the Tadawul.
What Is the Tadawul?
The Tadawul is the only stock exchange in the country and the main stock exchange among the Gulf Cooperation Council (GCC) countries. The market was mostly informal through the 1970s with only 14 companies listed. But in 1984, the government created a ministerial committee to develop and regulate the market. In 2003, the government created the Capital Market Authority (CMA), the sole regulator of the market, and in 2007, the Saudi Stock Exchange (Tadawul) Company was formed.
The Tadawul offers equities, Islamic bonds (known as Sukuk), exchange-traded funds (ETFs), and mutual funds. Currently, the Tadawul has nearly 200 companies listed for trading. The Tadawul All Share Index (TASI) is the major stock market index which tracks the performance of all companies listed on the Saudi Stock Exchange.
However, the Tadawul is a relatively new and evolving stock exchange that does not yet offer derivatives products, such as futures or options. Although, at the end of 2017, Nasdaq and Tadawul signed an agreement to transform Tadawul’s post-trade technology infrastructure. When completed, it will allow the Saudi Exchange to introduce new asset classes to the market.
How US Markets and the Tadawul Are Correlated
The US stock markets are positively correlated to the Tadawul due to a currency peg. In turn, the Tadawul is thought to be highly-positively correlated to neighboring stock exchanges, such as the Abu Dhabi stock exchange, the Dubai Stock Exchange, and the Bahrain Stock Exchange. Usually, price movements in the Tadawul trigger similar movements in these stock exchanges.