Morgan Stanley's Market-Making Gambit: A Catalyst for Saudi's Capital Market Renaissance?

The Saudi capital markets are on the brink of a liquidity revolution. Morgan Stanley's recent approval to act as a market maker for 52 securities across Tadawul's main market and Nomu—spanning energy giants like Saudi Aramco and SABIC, tech firms like stc and Jarir Marketing, and banking titans—marks a strategic pivot to transform Saudi Arabia's financial ecosystem. This move could reduce trading costs, attract foreign capital, and unlock value in underfollowed sectors. Let's dissect how investors should capitalize on this shift.

The Mechanics of Market-Making: Liquidity as a Growth Lever

Market-making is a double-edged sword: by providing continuous buy/sell quotes, firms like Morgan Stanley narrow bid-ask spreads and ensure stocks don't “dry up” during volatile periods. For Tadawul's 52 designated securities, this means:
- Energy (Aramco, SABIC):
- Minimum order sizes of SAR 150,000 and spreads capped at 0.65% will reduce transaction costs for institutional investors.
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- With Aramco's market cap exceeding SAR 9 trillion, even a 0.1% reduction in spreads could save billions annually for active traders.

• Tech & Telecom (stc, Jarir Marketing):
• Smaller order sizes (SAR 50,000–150,000) and lower spreads (0.65–0.75%) target Saudi's nascent tech sector, which has struggled with low trading volumes.

• stc, the telecom giant, now gains visibility critical for attracting FDI in digital infrastructure.

• Banking (Al Rajhi, SABB):

• Minimum traded value thresholds (≥5% daily volume) ensure banks—already Tadawul's most liquid sector—maintain their liquidity edge.

The Nomu Wildcard: A Goldmine for Patient Investors

Tadawul's parallel market, Nomu, hosts smaller companies like Purity IT and Future Care Trading. Morgan Stanley's market-making here is transformative:
- No minimum traded value requirement, but 5% spread caps (vs. 0.65% in the main market) signal a trade-off between risk and reward.
- Smaller firms gain price stability and investor confidence, potentially unlocking valuation re-rates as spreads compress.
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Compliance as a Competitive Advantage

Tadawul's strict rules—minimum order presence (50–80%), size thresholds, and spread caps—are non-negotiable. This creates a level playing field for foreign investors:
- Foreign Portfolio Investment (FPI) inflows hit SAR 320.6 billion (USD 85.5B) as of May 2025. Morgan Stanley's role will further ease access.
- Tax incentives (30-year exemptions for regional HQs) let Morgan Stanley operate efficiently, passing savings to clients.

The Vision 2030 Backstop

Saudi Arabia's economic diversification plan hinges on capital market growth. By 2030, non-oil GDP is projected to hit USD 1.5 trillion, with tech and tourism leading the charge. Morgan Stanley's program directly funds this transition:
- Tech & ESG plays: Firms like stc (5G infrastructure) and ADES Holding (sustainable real estate) benefit from liquidity-driven investor interest.
- Energy diversification: SABIC's petrochemicals and Aramco's renewables investments gain credibility as trading costs fall.

Investment Thesis: Go Big on Liquidity Winners

The data is clear: improved liquidity → lower volatility → higher valuations. Here's how to play it:

1. Core Positions:
2. Aramco (SAR 32.80) and SABIC (SAR 23.45): Buy the dip on geopolitical noise. Their sheer size ensures Morgan Stanley's market-making stabilizes pricing.

4. Growth Plays:

5. stc (SAR 15.60) and Jarir Marketing (SAR 45.20): Tech exposure with liquidity backstops. Both are prime targets for FPI inflows.

6. Nomu Contrarian Bets:

7. Purity IT (SAR 18.90) and Edarat IT (SAR 10.20): Underfollowed names with 5%+ growth profiles.

Risks? Yes, But Manageable

• Oil price swings: A sustained drop below $70/bbl could spook energy investors.
• Regulatory overreach: Tadawul's strict compliance rules could deter speculative trading.

Final Call: The Time to Act is Now

Morgan Stanley's entry isn't just about spreads—it's about Saudi's credibility as a global investment destination. With Vision 2030 deadlines looming and Tadawul's market cap nearing $2.5 trillion, the liquidity boost is a once-in-a-decade catalyst.

Portfolio Action: Allocate 5–10% to Saudi equities via ETFs like Saudi Arabia Energy ETF (SAR) or direct plays in the 52 securities. The math is simple: lower costs + higher liquidity = higher returns. Don't let this liquidity revolution pass you by.

Disclosure: This analysis is for informational purposes only. Consult a licensed advisor before investing.