Saudi IPO Delay Is Another Setback for the Lagging Stock Market

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(Bloomberg) — A postponed initial public offering in Saudi Arabia is the latest setback for a stock market that’s trailing global peers for the fourth year in a row.  

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Mutlaq Al-Ghowairi Contracting Co.’s decision to delay its share sale due to the war in Iran derailed what would have been the Gulf region’s biggest listing this year. It’s adding to the woes of the kingdom’s Tadawul All-Share Index, which has gained about 5% this year — just behind MSCI’s global benchmark — despite a windfall from higher oil prices.

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While the government has been pushing for years to get more investment into the $2.6 trillion market, foreigners have stayed away from Saudi equities, which, according to a Bank of America Corp. report, continue being one of the largest underweight positions among emerging-market funds. The Iran war will have added to their caution, given Tehran’s threats to target Gulf nations that host US military bases. 

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But there’s a slew of other factors too, above all, the composition of the market which is dominated by energy, petrochemicals and financial stocks. While surging oil prices have lifted the Saudi Aramco energy conglomerate and a handful of other names, emerging-market investors have largely bypassed companies that are not geared to technology and artificial intelligence.

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The Riyadh index is hampered “by the relative lack of exposure to the broader AI theme which has gripped markets globally,” said Fraser Harle, investment manager at Aberdeen Group Plc. 

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“The market remains unfamiliar territory for many global EM allocators, whose exposure has historically been concentrated in a handful of the larger, more liquid names,” he added. 

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Still, the Saudi benchmark is faring better than Middle East peers such as Kuwait, Qatar and the United Arab Emirates. Its gains this year reverse some of the 2025 underperformance versus the MSCI GCC Countries Index, which was the biggest on record in data going back to 2006. 

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Indeed, the market was struggling even before the conflict. Saudi Arabia has run persistent fiscal deficits since 2022, and the war has exacerbated those strains. The deficit more than doubled from year-ago levels in the first quarter of 2026, while the economy grew at the slowest pace since mid-2024. To mend that gap, authorities are said to be revisiting plans for major projects tied to the kingdom’s Vision 2030 investment program. 

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To revive inflows, Saudi authorities said earlier this year non-residents would be allowed to invest directly in local equities, a key step in widening access to the market. However, they are yet to review rules limiting foreign ownership in local stocks. Scrapping the current 49% cap could unlock $10 billion in fresh investment, according to forecasts from Wall Street banks.