What Are the Financial Instruments Available in the Saudi Capital Market?

    1. Stocks

    Stocks are investments that give their holder ownership in a specific company. Individual investors become shareholders in a company once they own shares in that company. Usually, investors choose to invest in stocks of a certain company when a future price increase is predicted, or distributing dividends to shareholders is expected.   Stocks are the most commonly traded securities in the Kingdom of Saudi Arabia, and they are predominantly exchange traded via the Tadawul. Investors can invest in shares in both the main market and Nomu - Parallel market. Investment in the main market is available to all types of investors while in Nomu is restricted to qualified investors. The settlement cycle for exchange-traded equities is T+2 and the equities trade in lots of 1.  

    2. Exchange Traded Funds (ETFs) 

    Exchange-Traded-Funds or ETFs are investment funds that track an index, and these funds are traded on the Exchange just like equities during trading hours. ETFs are mainly characterized by their transparency as these funds follow the movement of indices and match their investment with the components of these indices. Therefore, it is easier for owners to know the performance of these funds through the performance of the indices that it follows or emulates.  

    3. Real Estate Investment Traded Funds (REITs) 

    Real Estate Investment Traded Funds, or REITs, are financial instruments that allow all types of investors to obtain investment exposure to the Real Estate Market. This is achieved through collective ownership of constructed or developed real estate qualified to generate periodic and rental income. REITs consist of units, where each unit represents ownership in the underlying real estate, and the units are just like shares and trade on Tadawul’s Main Market during trading hours.  

    Similar to other investment vehicles, REITs adhere to the rules and regulations issued by the CMA. REITs also abide by the high standards of transparency and disclosure that are already applied in the current equity market.  

    4. Sukuk and Bonds

    In the Saudi Arabian debt market, Sukuk and certain government debt instruments are the principal securities listed and available for trading at the Tadawul. The settlement cycle for the bond market is T+2.  

    Sukuk and bonds are funding instruments used by governments, companies, and institutions to provide the necessary liquidity to fund their projects at a relatively low cost. Also, Sukuk and bonds protect investors’ portfolios because they provide lower-risk investment tools with relatively safe periodic returns.  

    5. Mutual funds 

    Mutual funds are investment portfolios managed by a fund manager that aim to provide an opportunity for investors to participate collectively in the fund’s profits in exchange for specific fees. One of the advantages of mutual funds is that they are managed by wealth management specialists.  

    6. Derivatives 

    The launch of the Derivatives Market is one of the Financial Sector Development Program (FSDP) key initiatives under the Kingdom’s Vision 2030. A derivative is a financial contract whose value is based on an underlying asset or group of assets. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, and equity indices. For example, MT30 Index Futures is the first derivative product Tadawul offered. This product is a cash-settled index futures contract based on the MSCI Tadawul 30 index (MT30). The MT30 index provides investors with a benchmark of the largest and most liquid securities listed on the Tadawul.  

    Derivatives products can be used to diversify a portfolio, protect against downside risk by hedging equity investment positions, speculate on the directional movement of an underlying asset, or leverage investments using a limited amount of invested funds. 

    Summary:

    • In the Saudi Arabia equity market, investors can invest in shares in both the main market and the Nomu Parallel market. Investment in the main market is available to all types of investors while in Nomu is restricted to qualified investors.
    • Exchange-Traded-Funds or ETFs are investment funds that track an index, and these funds are traded on the Exchange just like equities during trading hours.
    • REITs allow all types of investors to obtain investment exposure to the Real Estate Market. REITs consist of units, and the units are just like shares and trade on Tadawul’s Main Market during trading hours.  
    • Sukuk and bonds are funding instruments used by governments, companies, and institutions to provide the necessary liquidity to fund their projects at a relatively low cost.
    • Mutual funds are investment portfolios managed by a fund manager that aim to provide an opportunity for investors to participate collectively in the fund’s profits in exchange for specific fees.  
    • MT30 Index Futures is the first derivative product Tadawul offered. This product is a cash-settled index futures contract based on the MSCI Tadawul 30 index (MT30). 
    The Information presented above is for information purposes only, which shall not be intended as and does not constitute an offer to sell or solicitation for an offer to buy any securities or financial instrument or any advice or recommendation with respect to such securities or other financial instruments or investments. When making a decision about your investments, you should seek the advice of a professional financial adviser and carefully consider whether such investments are suitable for you in light of your own experience, financial position and investment objectives.
    IN NO EVENT SHALL SAHM CAPITAL FINANCIAL COMPANY BE LIABLE FOR ANY DAMAGES, LOSSES OR LIABILITIES INCLUDING WITHOUT LIMITATION, DIRECT OR INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL DAMAGES, LOSSES OR LIABILITIES, IN CONNECTION WITH YOUR RELIANCE ON OR USE OR INABILITY TO USE THE INFORMATION PRESENTED ABOVE, EVEN IF YOU ADVISE US OF THE POSSIBILITY OF SUCH DAMAGES, LOSSES OR EXPENSES.
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