Saudi Arabia's stock market edged higher on Tuesday, with the Tadawul index gaining 0.32%, as a key business survey showed the kingdom's private sector still expanding in July. The modest advance came even as energy giant Saudi Aramco slipped 0.81%, underscoring the market's reliance on non-oil sectors for momentum.
The catalyst was Riyad Bank's Purchasing Managers' Index (PMI), which dipped to 53.1 in July from 53.3 in June. While the reading softened slightly, it remained comfortably above the 50 threshold that separates growth from contraction. A PMI above 50 means more businesses reported improvement than deterioration in activity compared with the previous month.
The survey pointed to continued gains in output and new orders, along with increased hiring. Riyad Bank's chief economist said the data reflects a non-oil economy that is holding up despite a difficult regional backdrop, a sentiment that resonates with investors watching for signs of resilience in the Gulf's largest economy.
What the PMI tells us
The PMI is a monthly survey of purchasing managers at private-sector companies, covering everything from manufacturing to services. It's a widely watched gauge of economic health because it captures the mood of businesses on the ground, including their views on demand, employment, and future prospects.
A reading above 50 signals expansion, while below 50 points to contraction. The July figure of 53.1, though slightly lower than June's 53.3, still indicates solid growth. The fact that output and new orders continued to rise, and that firms are hiring, suggests that domestic demand remains robust even as the global economy faces headwinds.
For Saudi Arabia, the non-oil sector is a critical focus. The government has been pushing to diversify the economy away from oil dependence, and the PMI is often seen as a barometer of that effort. A sustained expansion in private-sector activity is a positive sign for job creation and for the broader economic transformation agenda.
Aramco's slip and the oil backdrop
While the Tadawul rose, Saudi Aramco, the world's largest oil company by market value, fell 0.81%. The decline came despite the company reporting stronger first-half results, a reminder that even good earnings don't always translate into share price gains, especially when oil prices are under pressure.
Oil markets have been volatile recently, with prices sliding on concerns about global demand and geopolitical developments. As oil and gas prices slide, energy stocks often feel the pinch, and Aramco is no exception. The company's fortunes are closely tied to crude prices, and any weakness in the oil market can weigh on its stock, even if its underlying business is performing well.
Investors are also keeping an eye on regional tensions, which have at times pushed oil prices higher. But the recent trend has been toward easing, with hopes of a Hormuz deal helping to push oil lower. That dynamic has been a mixed bag for Saudi stocks: lower oil can hurt Aramco, but it can also reduce geopolitical risk premiums and support broader market sentiment.
What it means for investors
For everyday investors, the key takeaway is that Saudi Arabia's non-oil economy continues to show resilience. The PMI staying above 50 for another month suggests that businesses are still finding opportunities to grow, which bodes well for the broader market over time.
However, the divergence between the Tadawul's rise and Aramco's fall highlights the importance of diversification. While energy stocks are a major part of the Saudi market, the non-oil sectors—such as retail, construction, and financial services—are increasingly driving growth. Investors who focus solely on oil-related names may miss out on the broader expansion.
The PMI data also aligns with other signs of non-oil strength. As Saudi non-oil growth slows but stays solid, the economy is showing it can withstand external pressures. That's a reassuring signal for those with exposure to Saudi equities or to the region more broadly.
Looking ahead, investors will be watching whether the PMI can hold above 50 in the coming months, and how oil prices evolve. A sustained expansion in the non-oil sector could support further gains in the Tadawul, while a sharp drop in oil could weigh on Aramco and, by extension, the index.
For now, the message is one of cautious optimism. The Saudi economy is growing, but it's not immune to global and regional challenges. As always, a balanced approach—one that considers both the energy sector and the broader economy—remains a sensible strategy for investors.
