MARKET OVERVIEW
THIRD QUARTER 2022
FOREWORD
Saudi Arabia continues to weather turbulent global macroeconomic conditions, showing encouraging signs of strength as markets in our region and around the world face market volatility.
Looking deeper, data reveals that Saudi Arabia’s GDP grew by 2.22%
in the second quarter of 2022, outpacing the 0.40% OECD average GDP growth. The Kingdom’s growth is even more impressive when compared with the G20 average GDP contraction of -0.40% during the same period.
During the third quarter of 2022, the majority of GCC exchanges experienced volatility, with many exchange indices starting off the quarter in a decline, rebounding in August before ultimately falling again through September to the end of the quarter. On the Saudi Exchange, we saw market capitalization decrease 5.34% on the main market as a result.
While the total size of the Exchange’s sukuk and bonds issuance fell slightly during the third quarter, down 0.22%, we are pleased with recent market activity. We saw a significant uptick in sukuk and bond trading during the quarter compared with the second quarter, with the number of trades increasing by nearly 11% and the value traded increasing by over 260%, rising to SAR 2.47 billion.
In an encouraging sign for our market, Nomu–Parallel Market saw its market capitalization rise by 3.44%, adding seven new listed
companies in the third quarter. We developed Nomu as an alternative equity platform for companies that historically struggled to list because of the high barriers to entry. We are pleased to have fostered the growth of a market featuring companies of various sizes from a diverse range of sectors.
Providing investors with a broad array of investment opportunities is crucial for drawing investors to our market and increasing liquidity.
This quarter, materials and banks led trading activity, accounting for roughly 25% and 19% of the value traded on the Exchange, respectively.
Saudi Tadawul Group and our subsidiaries are moreover taking action to increase foreign participation in our market through far-reaching market enhancements and initiatives. In this report, Edaa CEO Raed Ibrahim Al-Humaid speaks about the Group’s progress in facilitating access for foreign investors.
Despite fluctuations in global markets, the Saudi economy has proved its strength and resilience. The Saudi capital market has witnessed remarkable development in several areas, and we seek to continue this momentum to achieve the goals of investors and all market participants.
1 https://www.weforum.org/agenda/2022/06/inflation-stats-usa-and-world/
Mohammed Al Rumaih
CEO of Saudi Exchange
2
Q3 KEY
HIGHLIGHTS
SAUDI CAPITAL MARKET
BILLION SAR
Average daily value traded during Q3 2022
6.05
BILLION SAR
Holding value of Qualified Foreign Investors at the end of Q3 2022
280
The Q-on-Q growth of the number of trades in sukuk & bonds; with 525 trades during Q3 2022
10.99%
(1.61 BILLION USD)
(74.73 BILLION USD)
The Saudi Arabian Economic Overview
(Based on data available at the time of publication) As 2022 progresses, Saudi Arabia has largely continued to enjoy the steady economic growth it experienced throughout much of last year.
With the effects of the pandemic beginning to fade, the Kingdom has been well poised to capitalize on these conditions. Saudi Arabia’s GDP grew 2.22% in the second quarter of 2022, over five times the OECD average GDP growth of 0.40%. Saudi Arabia’s positive growth is even more striking when contrasted with the G20 average, which witnessed a GDP contraction of -0.40%.
Concurrently, the unemployment rate continued to decrease, falling to 9.70% in Q2 2022 from 10.10% in Q1 2022. While the decline in
unemployment should allow for an uptick in domestic demand, this is likely to be constrained by the continued global rise in inflation. On this front, except for a small 0.10% dip between April and May, Saudi Arabia has seen a steady month-on-month increase in inflation throughout 2022, in line with other economies around the world. Inflation rose slightly in June to 2.30% from 2.20% in May and increased further to 2.70% in July, reaching 3.1% in September, at the end of Q3.
Saudi Arabia successfully maintained the positive economic
momentum it built over the course of 2021 through the halfway point of 2022. Despite the impact of varying geopolitical and economic events on global markets, the Kingdom has managed to sustain growth as it continues to recover from the impact of the pandemic.
INFLATION RATE M-ON-M
GDP GROWTH Q-ON-Q SAUDI NATIONALS’ UNEMPLOYMENT RATE Q-ON-Q
15%
10%
5%
0%
-5%
-10%
-15%
2020Q3
2020Q2 Q3
Q1 2021
2020 Q1
Q4 2021
2020 Q4
Q2 2021
2021 Q2
2022
Saudi Arabia OECD Average G20 Average
SOURCE: GDP AND SPENDING - QUARTERLY GDP - OECD DATA
SOURCE: INFLATION RATE (SAMA.GOV.SA)
SOURCE: GENERAL AUTHORITY FOR STATISTICS (STATS.GOV.SA) 14%
12%
18%
10%
16%
8%
6%
4%
2%
0%
15.4%
14.9%
12.6%
11.7%
11.3% 11.3%
11% 10.1% 9.7%
2020Q3
2020Q2 Q3
Q1 2021
2020 Q1
Q4 2021
2020 Q4
Q2 2021
2021 Q2
2022
4
Sep22 3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0% May
22 Jun
22 Jul
22 Aug
Apr 22 Mar 22
Feb 22 Jan 22
Dec 22 Oct 21
Sep 21
21 Nov
21 0.3%
0.6% 0.8%
1.1% 1.2% 1.2%
1.6%
2.0% 2.3% 2.2% 2.3%
2.7%
3.1%
Muqassa and Edaa announce changes to cash market clearing and depository center procedures (September 2022)
Thomas Murray upgrades the central securities depository risk assessment for Edaa from ‘A’ to ‘A+’ with a
stable outlook (August 2022)
Muqassa and Edaa announced changes to the Saudi Exchange’s cash market clearing and depository center procedures, further strengthening the stability of the Saudi capital market. As a result of the changes, the settlement date for failed trades made on the Saudi Exchange will go from two business days to 8 business days from the intended settlement date. Market members also have the option of obtaining securities from the main market and settle trades before mandatory buy-in is activated 5 business days after the intended settlement date. If the securities are not delivered by the intended settlement date, Muqassa will initiate the cash substitution process, whereby securities are substituted with a cash obligation. These changes avoid substitution and increase the chances of delivering securities to clients effectively.
The overall risk rating for the Securities Depositary Center Company (Edaa) was upgraded from ‘A’ to ‘A+’ with a stable outlook by Thomas Murray, the leading global post-trade risk and custody specialist. Thomas Murray also reviewed and upgraded Edaa’s component risk grades for Asset Commitment Risk from
‘A-’ to ‘AA’, Liquidity Risk from ‘A’ to ‘A+’ and Counterparty Risk from A- to AA- with a stable outlook. The revision comes following several enhancements including removal of pre-funding requirements, the introduction of a central counterparty in the cash market (Muqassa), and the recent roll-out of enhancements to improve trade and post-trade services, including expanded settlement over three daily batches and buy-in facilities.
Market Enhancements
The Saudi Tadawul Group has made facilitating access for investors to the Saudi capital market a top priority as it works to continue developing a leading capital market and turn Saudi Arabia into an international investment destination of choice. Edaa, the Securities Depository Center Company, is a driving force behind the Group’s efforts to increase and ease access to the Saudi capital market and enhance opportunities for existing and potential investors and other market participants.
Edaa is improving access to the Saudi market by introducing linkages with foreign depository centers and by investing in its infrastructure.
Raed Ibrahim Al-Humaid, Edaa’s Chief Executive Officer, sheds light on how the linkages and recent enhancements are helping to transform the Saudi capital market.
Leadership Insights
Can you tell us more about Edaa’s linkages with Euroclear and Clearstream and how they were developed?
The process of developing linkages began in 2021 when Saudi Arabia’s Capital Market Authority approved Edaa’s international central securities depository instructions (ICSD), which enabled Edaa to form linkages with international securities depository centers.
We announced our first linkage with Clearstream, the post-trading service provider of Deutsche Börse Group, in June 2021. Launching this linkage, which allows foreign investors to access the Exchange’s sukuk and bond market and ETFs, was a significant step forward toward realizing our vision of opening the Saudi capital market to international investors. Soon after, in October 2021, Edaa signed an agreement with Euroclear Bank, a Brussels-based international central securities depository, to launch a fully-Euroclearable link that allows foreign investors to access the local sukuk and bond markets.
Importantly, these linkages allow investors to trade and safe keep Saudi government and semi-government bonds listed on the Exchange without holding QFI status, removing what can sometimes be a barrier to entry for foreign investors.
What are some of the recent enhancements implemented by Edaa and why are they significant for the Saudi capital market?
In April 2022 Edaa along with Muqassa and the Saudi Exchange implemented the largest set of enhancements introduced in the history of the Saudi capital market. Edaa aligned its depository system and post-trade services with international standards and introduced straight-through processing of ISO messaging as well as daily and ad-hoc reconciliation and reporting of participants.
Straight-through processing helps to reduce settlement risk by sharing information electronically, meaning data is received almost instantly.
In September 2022, we also changed the settlement cycle for failed trade from T+2 to T+8, increasing the effective delivery of trades to clients.
On a broad scale, the enhancements increase opportunity and access for foreign investors by strengthening the market infrastructure, improving risk management tools, enhancing the trading process, and increasing efficiency in the market.
Edaa’s risk rating was recently upgraded, what does this mean for the Saudi capital market?
This upgrade serves as a testament to our efforts to align with international standards by introducing a new central securities depository system and improved post-trade services. We aim to continue enhancing the experience for market participants and offer secure depository services, while strengthening the Saudi capital market’s infrastructure and increasing its attractiveness to investors and issuers alike.
How does Edaa plan to use this momentum going forward?
An important element of Vision 2030 is to bring international investors into our capital market. The linkages with Clearstream and Euroclear build on the growing excitement internationally about the Saudi debt markets. We are eager to capitalize on this excitement by continuing to invest in our infrastructure and systems. Moreover, we will reach out directly to foreign investors to better understand their needs and improve our market experience through honest conversations and listening to their direct feedback.
6
Nomu - Parallel Market - Q3 2022
35.82 billion (3.44%)
Market capitalization (SAR)
1.97 billion (3.37%)
Value traded (SAR)
38 (+7)
Listed Companies
19,870.82 (7.94%)
Parallel Market Capped Index (NomuC) Closing
Main Market - Q3 2022
10.83 trillion (5.34%)
Market capitalization (SAR)
363.10 billion (26.64%)
Value traded (SAR)
217 (+2)
Listed Companies
11,405.32 (1.02%)
Tadawul All Share Index (TASI) Closing
The Saudi Exchange’s Main Market declined in Q3 2022, however the Nomu – Parallel Market grew.
The total value traded on Saudi Exchange’s Main Market decreased by 26.64% from the previous quarter, and its market capitalization decreased by 5.34%. Still, the number of newly listed companies on the main market continued to grow, in line with last quarter, with two new companies listing on the main market during the quarter.
The Nomu–Parallel Market grew both in terms of total listings and market capitalization, adding seven new listed companies in Q3 2022 with its total market capitalization increasing by 3.44%.
Equities
Over the Q3 period, average daily traded value rose significantly from SAR 5.63 billion in July to SAR 6.91 billion in August, only to fall to SAR 5.43 billion by the end of the quarter in September.
AVERAGE DAILY VALUE TRADED & VELOCITY
Velocity (%) Value (SAR billion)
Jul22
Mar22 May
22 Aug
Jan 22
22 Jun
Feb 22
22 Apr
Dec 22 Nov 21
Oct 21 21
7.27 6.76
19.2%
16.9%
16.6%
17.9%
10.20 8.40
16.7%
23.5%
16.1%
16.7%
15.1%
12.0%
9.21 9.27 9.7%
6.91
6.54 5.63 5.43
7.45
6.06
0%
25%
20%
15%
10%
5%
6 7
4 5
3 12
2 11
10
8 9
Sep22 17.7%
PERFORMANCE OF TASI & VOLUME TRADED
10,500 10,000 12,500 13,000
12,000
300 350
11,500
200 250
150 11,000
100 50 0 3 Jul
2022 17 Jul
10 Jul 2022
2022 24 Jul
2022 31 Jul
2022 7 Aug
2022 14 Aug
2022 21 Aug
2022 28 Aug
2022 4 Sep
2022 11 Sep
2022 18 Sep
2022 25 Sep 2022
8 Other Industry Groups:
Food & Beverages 4.17%
Software & Services 4.15%
Insurance 4.05%
Consumer Services 3.77%
Capital Goods 3.22%
Utilities 2.96%
Food & Staples Retailing 2.80%
Diversified Financials 2.58%
Health Care Equipment & Svc 2.57%
Retailing 2.47%
Transportation 1.64%
Commercial & Professional Svc 1.49%
Consumer Durables & Apparel 1.23%
Media and Entertainment 0.93%
REITs 0.54%
Pharma, Biotech & Life Science 0.12%
Banks
TOP 5 INDUSTRY GROUPS TRADED BY VOLUME - Q3 2022
Other Industry Groups:
Telecommunications Services 5.40%
Food & Beverage 3.58%
Consumer Services 3.32%
Capital Goods 3.09%
REITs 2.26%
Transportation 2.26%
Diversified Financials 2.17%
Retailing 1.97%
Food & Staples Retailing 1.91%
Consumer Durables & Apparel 1.81%
Utilities 1.57%
Health Care Equipment & Svc 1.54%
Commercial & Professional Svc 1.19%
Software & Services 1.13%
Media & Entertainment 0.29%
Pharma, Biotech & Life Science 0.16%
Real Estate Managment
& Development
Materials Energy Insurance
15%
20% 14%
9%
8%
19%
25% 7%
6%
5%
TOP 5 INDUSTRY GROUPS TRADED BY VALUE - Q3 2022
Telecommunications Services
Materials Banks Energy Real Estate
Managment
& Development
During Q3 2022, materials and banks were the most active industry groups in terms of both volume and value traded.
Value Traded (SAR billion) Total Size of Issuance (SAR billion)*
6 7
510 520
500
490
440 460
450 470 480
420 5
4
3
2
0
Q3 2022 Q2 2022
Q1 2022 Q4 2021
Q3 2021
430 1
0.685
The Saudi Exchange’s total size of sukuk and bonds issuance fell slightly by 0.22% to SAR 511 billion in Q3 2022, with six delistings and no new listings. However, sukuk and bonds performed extremely well compared with the previous quarter—the number of trades increased by nearly 11%, while the value traded significantly increased in Q3 from Q2, rising by 260.60% to reach SAR 2.47 billion.
Sukuk / Bonds – Q3 2022 Overview
511 billion (0.22%)
Total Size of Issuance (SAR)
956.46 (0.10%)
Sukuk and Bonds Market Index closing
77 (6 delistings)
Listed sukuk and bonds525 (+10.99%) 2.47 Billion (+260.60%) 699.36 Million (+261.92%) Q3 2022 VS. Q2 2022
Value Traded (SAR) Nominal Value Traded (SAR) Number of Trades
Sukuk & Bonds
SUKUK & BONDS TOTAL SIZE OF ISSUANCE AND VALUE TRADED
Month Volume Traded Value Traded (SAR) Number of Trades
July 2022 146 884,430 15
August 2022 135 3,511,600 9
September 2022 20 152,400 1
Derivatives – Q3 2022 Overview
4.55 million
Value Traded
25
Number of Trades
The volume of derivatives contracts traded on the Saudi Exchange in Q3 2022 was 301, an increase from 187 in Q2 2022. However, the total value traded decreased to SAR 4.55 million in Q3 2022 from SAR 32.6 million in Q2 2022.
DERIVATIVES MONTHLY TRADING STATISTICS – Q3 2022
Derivatives
VOLUME & VALUE TRADED OF DERIVATIVES CONTRACTS
20 40 60 80 120 160
140
100
0
6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000
4,000,000 2,000,000 0 Sep22
Aug22 Jul22
Jun22 May22
Apr22 Mar22
Feb22 Jan22
Dec21 Nov21
Oct21
Volume Traded Value Traded (SAR)
10 100
20
85 80
77
20
90
146
135
20 45
0
*Includes SWAP Holders, Foreign Residents & Others, QFIs, Foreign DPMs and Foreign Strategic Investors
Foreign Investor Ownership* - Q3 2022 Overview
353.14 billion
Main Market Holding Value (SAR)
378.65 million
Nomu - Parallel Market Holding Value (SAR)
Ownership of firms listed on the Saudi Exchange is becoming increasingly institutional and international in nature. The value of foreign investors’
holdings in the Main Market remained relatively stable, at SAR 353.14 billion in Q3 from SAR 353.69 billion in Q2. Concurrently, the Nomu – Parallel Market fell slightly to SAR 378.65 million in Q3, down from SAR 387.82 million in Q2 2022. Importantly, the Saudi Exchange continues to work closely with the Capital Market Authority to make the Saudi market attractive to international investors by improving market function and efficiency, expanding access, improving corporate governance, and increasing transparency.
Ownership
OWNERSHIP BY INVESTOR TYPE Q3 2022 (Main Market)
77.30%
Government Related Entities
11.54%
Saudi Institutions*
3.73%
7.43%
Non-Saudis**
Saudi Individuals
*Excluding GREs **Includes (Foreign & GCC)
OWNERSHIP BY INVESTOR TYPE Q3 2022 (Nomu-Parallel Market)
*Includes (Foreign & GCC)
QFIs are playing an increasingly significant role on the Saudi Exchange, and by the end of Q3 2022 their holdings in Saudi-listed firms stood at SAR 280 billion. The percent of the total market that QFIs represents continued to hold steady at around 2.6%
throughout the quarter.
22 7.1%
QFI TRADING VALUE - MAIN MARKET (BILLION SAR)
30 40 50 60 70 90 80
20 10 0
25%
15%
20%
10%
5%
45 0%
15.6%
Jun
15.3%
29 Jul
12.1%
38 Aug
17.5%
37 Sep 23.5%
78 May 14.3%
67 Mar 36
11.3%
Feb 29
9.8%
Jan 34
10.5%
Dec Oct
28 10.5%
Nov
During Q3 2022, value traded by QFIs fell to SAR 104 billion from SAR 174 billion in the previous quarter. However, in September QFI trading value represented 17.5% of the total market, its second highest peak over a 12-month period.
QFI OWNERSHIP - MAIN MARKET (BILLION SAR)
* As at the end of the month **For issued shares 250
300 350 400
200 150 100 50 0
% of Total Market** Holding Value % of Freefloat Value Foreign Ownership (SAR Billion)*
10%
12%
14%
16%
18%
6%
8%
4%
2%
Sep 0%
Aug 22 Jul 22
Jun 22 May 22
Mar 22 Feb 22
Jan 22 Dec 22
Nov 21 Oct 21
21 Apr
22
284 294
280 302
246 227 246 274 289 318 340
311
2.5%
2.4% 2.5% 2.6% 2.5% 2.7% 2.7% 2.5% 2.6% 2.6% 2.6%
2.3%
14.30% 14.34% 14.74% 14.99% 15.29%
12.07% 12.09%
12.49%
12.75% 12.66% 12.31% 12.89%
47.74%
Saudi Individuals
Saudi Corporates
1.20%
10.13%
Non-Saudis*
Saudi Institutions
40.92%
50 Apr 13.7%
