JEDDAH, 5 March 2006 — Saudi stocks continued to plunge yesterday as jittery retail investors poured in more selling orders that found few buyers.
The Tadawul All-Share Index (TASI) declined 4.92 percent to close at 17,576.49 points, down 909.75 points from Thursday’s close. The index has lost over 3,000 points in six trading days. The index, in fact, reached an all-time high of 20,634.86 on Feb. 25 this year. The index is still up 5.17 percent so far this year.
The stock market turnover was much lower at SR7.71 billion yesterday as stocks of all 78 listed companies were in the red with trading focusing on blue chips such as Saudi Basic Industries Corp. (SABIC), Saudi Telecom Company (STC), Saudi Electricity Co. (SEC) and smaller firms Makkah Construction and Bank Albilad. The heavyweight Industrial and Banking Indexes lost over 2,000 points each yesterday.
“Small retail investors are panicking and are driving down a market which is in desperate need of direction or intervention by funds to limit the losses,” a senior trader said.
Salim J. Ghalayini, a Riyadh-based financial consultant, told Arab News: “Investment observers are aware of the recent increase in volatility on the Saudi stock market. Of course, there has been more downward sessions lately than positive sessions. Although the solid fundamentals of the Saudi market have not changed, they have been overshadowed by investor sentiment and panic.”
He added that “unfortunately most small investors follow the advice of their friends and families, and whenever one is worried one sends a panic wave around that increases the offloading of stocks.”
Ghalayini said another major contributor to the sell-off is the unique IPO (initial public offering) environment of the Saudi market. “With high liquidity as against limited opportunities and small number of listed companies, share prices of IPO companies are unnaturally high. The high share prices cannot be justified or supported by the respective companies’ performance.”
“Soon after IPO, many investors dump their shares to reap quick profit. This cycle sends waves which push individual stock prices and the market downward. When investors are worried the effect is magnified.
“In spite of this, I see a positive reward in the above correction. It reduces the possibility of forming a market bubble which is normally followed by a burst or downward spiral of prices,” Ghalayini said.
Riyad Bank’s Chief Economist and Vice President Khan Zahid said while all regional bourses were taking a hit, the Saudi bourse was hit the worst “after a relentless climb that many thought will never end.” “This race backward is likely to continue, with occasional pullbacks, as the market attempts to find its fundamentals with small and recent investors likely to take bigger hits,” he said.
— Additional input from Reuters