JEDDAH, 19 March 2005 — Saudi shares surged to a new record above 10,000 points on Thursday as petrochemical and telecom stocks rose strongly, offsetting broader declines seen despite rising world oil prices.
The official Tadawul All shares Index (TASI) closed the week at 10,030 points, up 1 percent on the day.
Although crude oil prices hit fresh records on Thursday, providing further stimulus to the economy of the world’s biggest oil exporter, most industrial, banking and service stocks fell.
The return of SR6 billion ($1.6 billion) into the market from the oversubscription to Bank Albilad also failed to rally smaller shares. But petrochemical giant Saudi Basic Industries Corp. (SABIC), which accounts for nearly a third of market capitalization, gained 3.4 percent to SR1,489.
Saudi Telecom also gained 0.63 percent to SR636. Overall just 19 shares rose on Thursday and 54 fell in turnover worth nearly SR6.2 billion.
The Saudi bourse witnessed exchange of more than 16 million shares worth SR6.1 billion in over 43,000 deals.
After Thursday’s record sales, the total value of companies, whose shares are exchanged on the bourse, is SR1.407 trillion.
Abdelmenem Jamil Addas, a professor of finance and marketing at the College of Business Administration in Jeddah, told Arab News that “It has become the talk-of-the-day in every house about the recent run up in Saudi shares, a return of 40 percent to 70 percent has become the target for most investors. Anything less is no more acceptable, this is a dangerous sign of overconfidence. The question that all of us should raise is whether this stock market mania will continue for this year.”
From an economic view, interest rates on Saudi riyals will move in tandem with the US interest rates.
Fed Chairman Alan Greenspan and company has shown their hand lately that the Fed will keep pushing federal funds rate higher, possible to 4 percent this year.
Oil prices are expected to remain firm, but their correlation with the performance of the stock market is not as strong as many investors realize.
He also said that “Total public and private debts will continue to rise in Saudi Arabia, and corporate debts have increased by SR300 billion. Thus, Saudi economy has become debt-based and is susceptible to any increase in interest rates.”
One aspect that has been ignored by the investors is the steep increase in prices of all commodities such as copper, steel, aluminum, gold etc... In addition all indications point to much higher prices in 2005.
He also said that “From a financial view, the major Saudi corporations are being leveraged at an alarming rate, example, both SABIC & SEC have more than leveraged their overall shareholders’ equity. More so, their P/E ratios are at an all-time high of 49 and 60 respectively, which reflect the high risks of holding those shares. Saudi shares are largely held by a few investors who could destabilize the market should those investors decide to cash-in their profits.”
He added that “I expect a significant correction in prices to an index level of 6,000 to 7,000, (between 25 percent and 40 percent) which is a good possibility this year; my advise for the retail investors is to realize their profits and let the correction take its course.”