Since the start of this year, four well-known financial institutions have received licences to launch indices tracking the performance of sharia-compliant equities listed on the Saudi stock exchange (Tadawul).

In January, Saudi investment bank Falcom Financial Services launched its sharia index. In July, the US’ Dow Jones Indexes signed an agreement with the Tadawul under which it became the first international index provider to create indices based on the exchange’s listed companies. And in August, ratings agency Standard & Poor’s was granted a licence to use the Tadawul’s data to develop indices, following a similar concession being granted to the US’ Bloomberg in September. 

The indices will help the Tadawul better organise the distribution of market information and increase transparency.

There is growing investor interest in both sharia-compliant equities and in Saudi stocks, which dominate Gulf capital markets in terms of trading volume.

As the largest bourse in the Middle East, the exchange has a market capitalisation of $292.8bn and accounts for nearly three quarters of the entire value of stocks traded on all GCC stock exchanges. GCC sharia-compliant equities outperformed conventional equities by about 4 percentage points between June and September this year, making their current attraction to both Islamic and non-Islamic investors clear.

The creation of these indices is a sign of the increasing sophistication of the Tadawul, as the diversity of instruments increases to meet investor appetite for more complex investment products.

Having long been a closed and opaque market, the Tadawul is now becoming a desirable destination for global capital.