Saudi Market Correction Creates 'Very Attractive' Entry Point, Says Alrajhi Capital

Inside TASI's October Slide and Alrajhi Capital's Bullish Call

Saudi Arabia's benchmark stock index, TASI, has suffered a sharp correction in recent weeks, losing slightly more than 1,000 points in about two weeks through October 25 and touching levels last seen in 2021. The index recovered somewhat the following day but remains down 7% year-to-date and 24% below the highs reached in 2024. The selloff came despite TASI's initial resilience during the early phase of the US-Iran conflict, suggesting that near-term corporate earnings concerns and a rising risk premium have overtaken longer-term fundamentals in investors' minds.

Against this backdrop, Alrajhi Capital has published a note arguing that the correction has created "very attractive entry points" into Saudi equities. The research house points to sharply compressed valuations: TASI's trailing price-to-earnings ratio has fallen to levels last seen in 2018, and the index's premium over MSCI Emerging Markets has narrowed to just 6%, down from a long-term average of 24% and a peak of 60% in 2022. The risk premium on MSCI KSA relative to pre-conflict levels now stands at 24%, which is 1,000 basis points higher than that of MSCI GCC-ex KSA.

Alrajhi Capital also highlights Saudi Arabia's economic and operational resilience as a source of confidence, specifically citing Aramco's diversified export infrastructure and operational flexibility as factors supporting the kingdom's ability to adapt to changing conditions. The research house expects the oil outlook to provide further support, noting that rebuilding depleted inventories could sustain oil demand and prices over an extended period. For investors weighing exposure to Saudi equities, the note frames the current selloff as a potential opportunity rather than a signal of deeper structural weakness.

Why Saudi Equities Have Decoupled From Oil — and What It Means for Positioning

Why TASI Has Decoupled From Oil

According to Alrajhi Capital, TASI has diverged from oil prices for the first time in several years. This is a notable shift: historically, Saudi equities have moved broadly in line with crude, given the kingdom's fiscal and corporate dependence on hydrocarbon revenue. The decoupling suggests that investors are now pricing in a risk premium and near-term corporate earnings pressures rather than long-term fundamentals. In practice, this means the market is treating geopolitical uncertainty — specifically the US-Iran conflict — as a nearer-term threat than the oil price trajectory itself.

The Valuation Argument in Numbers

The core of Alrajhi Capital's bullish case rests on valuation compression. TASI's trailing P/E has fallen to 2018 levels, and the index's premium over MSCI Emerging Markets has shrunk to 6% from a long-term average of 24% and a 2022 peak of 60%. For context, that 6% premium is unusually thin for a market that typically commands a significant premium due to its weight in global energy and its inclusion in major EM indices. The risk premium on MSCI KSA versus pre-conflict levels is now 24%, which is 1,000 basis points higher than MSCI GCC-ex KSA — implying that Saudi-specific risk is being priced more aggressively than regional peers.

Where Aramco Fits In

Alrajhi Capital explicitly cites Aramco's diversified export infrastructure and operational flexibility as supporting the kingdom's resilience. This is a reminder that Saudi Arabia's export logistics — including pipelines and terminals that bypass potentially vulnerable chokepoints — give it a degree of operational adaptability that some regional producers lack. For equity investors, Aramco's scale and infrastructure are a stabilising factor in the index, even if the stock itself is not the primary focus of the note.

The Oil Inventory Rebuilding Thesis

The research house expects oil demand and prices to find support from inventory rebuilding over an extended period. For context, depleted global inventories typically require sustained production to replenish, which can underpin crude prices even amid demand uncertainty. If that thesis holds, it would provide a tailwind for Saudi equities — particularly energy-linked names — and reinforce the argument that current valuations are discounting too much near-term risk.

What Could Undermine the Call

The note itself acknowledges "a tinge of uncertainty." The key risks are that the US-Iran conflict escalates further, that corporate earnings disappoint in the near term, or that oil prices fail to recover as inventories are rebuilt. The divergence from oil also cuts both ways: if investors are now focused on earnings and risk premiums rather than crude, a positive oil surprise alone may not be enough to re-rate the market.

What the Alrajhi Note Signals for Saudi Equity Exposure

Alrajhi Capital's core message is that TASI's October selloff has compressed valuations to levels that historically precede strong entry points — but the call rests on near-term risks staying contained.

For investors and analysts with exposure to Saudi equities, the note offers several concrete reference points:

• Valuation watch: TASI's trailing P/E is at 2018 levels, and its premium over MSCI EM is 6% versus a 24% long-term average. A further narrowing toward zero would imply deeper pessimism; a reversion toward the average would imply significant upside.
• Risk premium spread: MSCI KSA's risk premium is 24% versus pre-conflict levels, 1,000 basis points above MSCI GCC-ex KSA. Watch whether this spread narrows — it would signal easing Saudi-specific risk perception.
• Oil inventory data: The oil demand recovery thesis hinges on inventory rebuilding. Track global inventory levels and OPEC+ production decisions as leading indicators for the oil support Alrajhi Capital expects.
• Aramco's operational updates: Given the note's explicit citation of Aramco's export infrastructure, any disruption or expansion in Aramco's logistics could shift the resilience narrative.
• US-Iran conflict developments: The note acknowledges uncertainty here. Escalation would likely widen risk premiums further; de-escalation could accelerate a re-rating.

For corporate issuers and regional businesses, a sustained re-rating of Saudi equities would lower the cost of capital and improve IPO and debt issuance conditions. For now, the market appears to be pricing near-term earnings and geopolitical risk over long-term fundamentals — a stance that Alrajhi Capital believes is overdone.