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Economic analysts predict that the recent 50-basis-point interest rate cut will positively impact the Saudi stock market by boosting liquidity, attracting more investors, increasing trading volumes and stock prices, and encouraging higher spending and consumption. These factors are expected to drive up sales and revenues for listed companies.
Analysts also suggest that the effect will become more pronounced with further rate cuts in the coming period. Sectors such as banking, financial funds, retail, hospitality, food, and companies with long-term loans are likely to benefit the most, with the impact expected to show in the financial results of listed companies during the fourth quarter of 2024 and the first quarter of 2025.
In comments to Asharq Al-Awsat, Mohammed Hamdy Omar, CEO of G World, stated that the interest rate cut will have a positive influence on the Saudi stock market both in the short and long term. In the short term, it will increase market liquidity, attracting more investors and boosting their confidence, leading to higher trading volumes and stock prices.
Additionally, the reduction in borrowing costs for consumers will stimulate spending and consumption, which will particularly benefit the retail, hospitality, and food sectors.
Omar added that in the long term, the interest rate cut will promote economic growth across many sectors by making borrowing cheaper for businesses and individuals.
He explained that the positive effects are expected to become visible in the financial results of listed companies starting from the fourth quarter of 2024, as the benefits of lower rates begin to materialize. These effects should be fully reflected in the first quarter of 2025, provided that interest rates continue to decline.
Omar noted that sectors like real estate, construction, manufacturing, and finance would benefit the most from lower interest rates, as it will reduce borrowing costs and improve their competitiveness. Moreover, sectors that rely on long-term contracts requiring bank financing will also gain from the lower borrowing costs.
Mohammed Al-Sagheer, a financial markets analyst, shared a similar outlook, describing the interest rate cut as positive for the stock market both in the short and long term. He explained that while the immediate impact of a 50-basis-point cut may be modest, its effects will become more significant as the rate is reduced multiple times.
Al-Sagheer suggested that at least four or five rate cuts would be necessary for the full benefits to emerge.
He also emphasized that successive interest rate reductions would attract foreign investment, increase cash flows into the stock market, boost trading volumes and values, and support the growth and revenues of listed companies. Furthermore, lowering financing costs would reduce corporate expenses, leading to higher profits.
Al-Sagheer pointed out that sectors like financial firms, investment funds, and companies with long-term loans would be most affected by the interest rate cuts. He expected the positive impact to gradually appear in the financial results of companies starting from the fourth quarter of 2024 and continuing into the first quarter of 2025.
Obaid Al-Muqati, another financial markets expert, told Asharq Al-Awsat that the rate cut comes after 11 consecutive increases over the past four-and-a-half years.
He noted that the Saudi stock market index was not significantly affected by the early rate hikes, continuing its upward trend and reaching a peak of 13,949 points in mid-2022. However, the market later entered a correction phase, dropping to a low of 9,930 points at the end of 2022 and the beginning of 2023.
Al-Muqati stated that the effects of the interest rate cuts would not be immediate, but would unfold in gradual, fluctuating waves. Nevertheless, he expects the overall impact to be positive and stimulating for the market, aligning with the anticipated market growth.
He predicted that sectors such as petrochemicals, banking, cement, and retail would respond positively to the rate cuts and that the Saudi market would increasingly attract foreign, Gulf, and resident investors.
