More IPOs won’t be enough to fix the Saudi market

Saudi Arabia's stock market faces challenges that cannot be resolved by listing more companies alone. The market, known as Tadawul, is large with a value of approximately 9.30 trillion riyals, but it has experienced a significant decline in its benchmark index last year. The market's size masks a lack of depth, liquidity, and trust.

Mazen Al-Sudairi, appointed as the new chairman of the Capital Market Authority, faces the task of improving the market's performance. One of his biggest challenges is bridging the gap between Tadawul and the broader economy. The stock market remains dominated by a few sectors and has failed to capture many of the private businesses benefiting from the kingdom's Vision 2030 transformation.

The regulator has taken immediate measures, such as capping foreign investments in money-market funds and reminding listed companies to link board pay to performance. These actions aim to redirect capital towards domestic instruments and improve governance, but they do not address the deeper issues plaguing the market. Saudi Arabian stocks have not recovered since their peak in 2006, and investors have numerous alternatives abroad.

The CMA's recent circulars suggest an intent to scrutinize governance more closely. However, these measures do not tackle the underlying problems. The IPO market has shown some improvement, with more offerings in 2025 compared to 2024. Yet, the CMA is investigating the pricing and allocation of recent IPOs following several listings falling below their offer prices.

The market's primary function is a subject of debate. While family businesses, accounting for almost 95% of Saudi establishments, could diversify Tadawul meaningfully, they require governance structures that balance the interests of outside shareholders and founders. The regulator's efforts, including the recent circulars, aim to make the market easier to trade, harder to misprice, and more useful for companies seeking capital.