Saudi regulations target stock market speculators

Updated 17 May 2013
0

Saudi regulations target stock market speculators

DUBAI: A drive for tighter regulation of Saudi Arabia's stock market may help to break the hold of short-term speculators on share prices, making the market more attractive to local and foreign institutional investors.
This week the Capital Market Authority, operating under a new chairman, announced a series of measures designed to reduce the volatility of shares, make them harder to manipulate and improve the quality of listed companies.
Authorities have tried in the past to lift the market's tone, with limited success. Currently over 90 percent of daily trading on the Arab world's biggest stock market, which has a capitalization of about $ 400 billion, is conducted by retail investors rather than institutions, officials say.
Because such investors often chase short-term gains in low-priced shares that are easy to manipulate, prices can become very volatile and money is sucked away from blue-chip companies that deserve to be more highly valued. This hurts the market's role as a stable source of funds for corporate investment.
The CMA's initiatives this week suggest it is making its strongest effort in years to change that pattern, fund managers and analysts said.
"The new management of CMA has started their work to enhance the market overall — expect a few more changes," said Mohammad Omran, an independent financial analyst in Riyadh. "These initiatives will try to organize the practices in the market and move it away from illegal and speculative trading."
If successful, the reforms could make the Saudi market more welcoming to foreign as well as local institutional investors. At present foreigners can invest only via a small number of exchange-traded funds and swap arrangements; Riyadh has for several years been preparing to permit direct investment, though it has not set a date for implementation.
Stock market reform also has political implications. After the Arab Spring uprisings elsewhere in the region, the government is spending billions of dollars to ease social discontent by cutting unemployment and poverty. Stronger capital markets could stimulate the private sector and create jobs.
The move against speculation appears to have backing at the top of the government. Custodian of the Two Holy Mosques King Abdullah appointed Mohammed bin Abdulmalik Al-Sheikh, previously an executive director at the World Bank, as chairman of the CMA in February.
Al-Sheikh has worked at US law firm Latham & Watkins in Riyadh; the firm said he had nearly two decades of experience representing sovereign wealth funds and government bodies in Saudi Arabia, and that his law practice focused on mergers and acquisitions, capital markets and project finance.
Last week Al-Sheikh told reporters that with other government bodies, the CMA was developing a strategy to promote institutional trading on the stock market, and was disappointed by the current "high levels of speculation" in shares.
"The CMA should put a limit on this manipulation to safeguard investors. We are currently trying to address this issue," he said.
On Sunday, the CMA announced stocks would be limited to price swings of 10 percent on their first day of trade, as opposed to the unlimited movement allowed previously. A 10 percent daily limit is already applied after listing day.
By slowing the ascent of newly listed stocks, the new rule may give institutional investors, which tend to have longer-term horizons, more time to buy into them.

"This is a step towards a more sophisticated market — the price of the IPO will hold more value,” said Tariq Alalaiwat, international sales manager at NCB Capital. “Usually, books are more inflated than they need to be, and people buy into loss-making companies for a quick buck.”
The new rule might end debacles such as the case of National Medical Care Co., which listed on March 13. It rocketed to an intra-day high of SR 200 from its initial public offer price of SR 27, but ended its first day at SR 122 and by March 31, had slid back to SR 72.
On Monday, the CMA said it was discussing with industry participants a proposal to calculate a stock's closing price using the average in the last 15 minutes of trading, weighted by volume, instead of simply the last trade. This would make it harder for traders to manipulate the closing price.
The CMA also proposed sanctioning listed firms if their accumulated losses exceeded 50 percent of their capital. The current regulation sets a threshold of 75 percent.
Earlier this month, authorities signaled they were serious about such standards by ordering the delisting and liquidation of Saudi Integrated Telecom Co., a relatively small and new firm which had struggled with losses for months.
Share price movements since Sunday suggest some investors are worried by the CMA's policy. Small-capital and insurance stocks, which are often favored by speculators, have dropped; Al-Ahlia Cooperative Insurance Co. plunged its 10 percent limit on Monday and by the same amount on Tuesday. The sector's index lost 12.3 percent in the last three days.
The overall stock market has not suffered much, however, suggesting other investors see benefits in the reforms. The main market index fell 1 percent between Sunday and Wednesday.
Alalaiwat said that in the long term, retail investors would be forced to become more intelligent in their stock picks, rather than simply chasing shares that appeared to have entered an uptrend.
"These new regulations will calm down the market and people will have to start picking stocks with fundamental value."
FROM: REUTERS


OPEC nears oil output deal ahead of key Vienna meeting

Updated 15 min 56 sec ago
0

OPEC nears oil output deal ahead of key Vienna meeting

VIENNA: OPEC energy ministers expressed optimism Thursday they were nearing a compromise on oil output policy, with Saudi Arabia acknowledging that a big production hike would be “politically unacceptable” to archfoe Iran.
OPEC and non-OPEC partner countries are due to hold crunch talks in Vienna on Friday and Saturday to decide the fate of an 18-month-old supply-cut pact that has cleared a global oil glut and lifted crude prices to multi-year highs.
Saudi Arabia, backed by non-member Russia, is now racing to convince the alliance to raise production again in order to meet growing demand in the second half of 2018.
Adding an extra one million barrels per day to the market “sounds like a good target to work with,” Saudi Energy Minister Khalid Al-Falih said at a seminar organized by the Organization of Petroleum Exporting Countries (OPEC).
Regional rival Iran however is fiercely opposed to unwinding the agreed production curbs, as its oil industry is bracing for fresh sanctions following US President Donald Trump’s decision to quit the international nuclear pact.
Several other OPEC members, including Venezuela and Iraq, are also against major changes to the pact as they are unable to immediately boost production.
Signaling that positions might be softening, Saudi’s Falih acknowledged that “not every country can respond to an allocation of higher production” and said it was important to be “sensitive” to those concerns.
Allowing countries like dominant player Saudi Arabia to make up for the shortfalls of other members “may be a technical solution but it may not be politically acceptable to others,” he said at the Vienna seminar.
As the clock ticks down to the upcoming ministerial meetings, a face-saving compromise appeared to be in the works.
“We hope that there will be an agreement,” Iraqi Oil Minister Jabbar Al-Luaibi told reporters.
“Iraq is trying very hard to narrow the gap between the two blocs.”
UAE Energy Minister Suhail Mohammed Al-Mazrouei added: “I am very optimistic.”
Observers say the participating countries could simply agree to stop exceeding their quotas for cutbacks, and stick to the agreed target of trimming production by 1.8 million barrels per day (bpd).
The 24 nations in the pact, known as OPEC+, are currently keeping more than two million bpd off the market.
Most of the shortfall has come from Venezuela, where an economic crisis has savaged the nation’s petroleum production.
Output has also plummeted in Libya, where fighting between rival factions has damaged key oil infrastructure.