RIYADH, 9 June 2005 — Citizens and other residents in Saudi Arabia have gone on a stock-buying spree, hoping for quick gains but also inflating the Arab world’s most capitalized bourse.
Some are winding up small businesses and using the money to snap up shares, as the bourse’s vagaries become the talk of the town.
The new national craze has even created its own jargon, notably “hammour” — the big fish allegedly manipulating the market to swallow small fries.
Stockbroker Khaled Al-Johar attributed the share-buying fever to three factors - a strengthening economy thanks to record-high oil prices, low interest rates which encourage borrowing, and facilities offered by banks to investors in the bourse, which operates only on an interbank basis.
The rush to buy stocks can also be explained by a lack of investment outlets and the “increasing awareness” of the potential profits to be made in the stock market, which left many small investors convinced that it can yield better revenues than small projects, Johar told AFP.
Only Saudis and citizens of other Gulf Arab states can directly buy and sell shares while other residents have to go through investment funds. The Tadawul All-Shares Index (TASI) started in 2004 at 4,450 points, only to almost double its value by the end of the year, closing at 8,206 points. It crossed the psychological 10,000 point threshold in March, and shot up to a new high above 12,800 points on the first day of trading this week.
The market’s capitalization, which stood at around $140 billion at the beginning of 2004, has since more than tripled to reach about $460 billion. Daily trading value is now in the range of $5.9 billion.
Johar noted that more than eight million people had subscribed to the initial public offering of recently established Bank Albilad in February and suggested it was a sign that people were grabbing any investment opportunity.
“But investments must be channeled into successful companies instead of allowing haphazard speculation to continue... Otherwise, the current inflation could be followed by a sharp drop in the market,” he warned. Johar said the government should speed up its privatization drive and release part of its shares in big companies, such as petrochemicals giant Saudi Basic Industries Corp. (SABIC), which is 70 percent state-owned.
Moreover, companies should be encouraged to take up a stock market listing by cutting the time needed for the necessary red tape, said Johar, who owns a stocks and investment company.
The daily Al-Jazirah reported that authorities in Taif had frozen the assets of “one of the bourse’s hammours” in the western city and ordered an investigation into his unlawful activities.
It said the unnamed man had left a “modest job” to trade in the stock market in cooperation with a number of peers, reaping huge profits.
Johar said “hammour” was a reference to big investors suspected of “joining hands to control the shares of a company, bringing them up and down as they please”.
“But it should be said that big investors are also those who run the biggest risks, as evidenced when the market plummeted in 1985-1989 and in 1993-1998, leaving many big investors with significant losses,” he added.