JEDDAH, 10 October 2005 — Since the Capital Market Authority (CMA) approved and drew the guidelines for setting up stock brokerage offices in the Kingdom three months ago, investors have been considering whether they should continue investing in the stock market on their own or is it time to sign up with a stock broker.
Last week CMA licensed the first two financial consultancy offices. Although the CEOs of these two well-established offices are optimistic about the improvements in the stock market investment environment due to the new regulations, it is widely perceived that investors prefer not to use stock experts in making their decisions on the Saudi stock market. Stock market experts, however, find that it is a safer option to go through a stock broker who has knowledge and experience of investing in the stock market, especially if the investor is new to the world of investing.
Hossam Radwan, an expert in global stock markets working for an investment bank in London spoke to Arab News. He began by pointing out that using the term “Investment Professional,” is better than saying a stock broker.
“Don’t confuse brains with a bull market,” Radwan said. He explained that due to the massive rise in the Saudi stock market, there is a real danger that people who have very little knowledge and experience in investing in stock markets will start to think of themselves as expert investors.
This is not the way it should be, he commented. “It is always best to go through an investment professional especially if investors have little experience in stock markets,” he said.
Salim J. Ghalayini, an investment consultant who runs seminars in the Middle East on capital markets and investments shared the same point of view. “If the person starts by investing a small amount of money and has the time and is willing to learn about investment analysis and selection, then there is no need to use an investment professional.
However this approach has to be supplemented by reading and possibly attending courses/ seminars. For other cases it is advisable to use one,” he said.
The experts agreed there are many brokers who claim to be good, but in reality only few are. The amount of money they charge the investor increases the investment expense. “It eats up from your net profit,” said Ghalayini. Nevertheless, the advantage of using an investment professional is that they will save you time. Instead of going through financial information or analyzing it on your own, these experts will do it for you.
The investment professional however must have the proper certification and needs to sit for several exams, Radwan said, so he can manage and advise on investment. A university degree in finance or a related field, a certification — for example — as a Chartered Financial Analysts (CFA) and at least few years of experience would help show competence.
He said that mishandling people’s money is a serious offense and that is why investment professionals certification needs to be overseen by a regulatory body that sets out the proper. It is essential that this remains an ongoing process rather than a “one off” event.
Despite the advantages of using an experienced stock broker, some stock experts and a number of investors interviewed by Arab News concluded that it is difficult to make a strong case for using a stock broker or an investment professional today. This is mainly due to the limited number of publicly traded companies on the Saudi Stock Exchange and the lack of proper licensing and supervision.