RIYADH, 13 March 2006 — Saudi shares fell by nearly the 5 percent limit yesterday as a continuing correction prompted more selling orders mainly from retail investors. The Tadawul All-Share Index (TASI) closed 4.81 percent lower at 16,431.27 points, a level it last closed at around mid-December. The index hit an intraday low of 16,414.55 points, or 4.91 percent from Saturday when it lost 3.7 percent.
Turnover stood at SR7.2 billion ($1.9 billion), lower than an average daily volume of around SR40 billion this year. “The index is trying to find a support level but it’s failing to stabilize, “a senior trader said. “There is panic among retail investors who are not taking very well the belief that the bourse has become overvalued.”
The Arab world’s largest bourse has been declining since late February in a long-expected correction after a rally pushed valuation ratios to stellar levels on the back of abundant liquidity and a robust macroeconomic outlook.
The rally has triggered a race for quick wealth among an army of about 3 million retail investors, most of whom lack basic knowledge in bourse mechanisms and ended up investing heavily in low-cap speculative shares. The thin trade focused on heavyweights, of which several fell by almost the allowed decline limit.
Al-Rajhi Bank closed down 4.98 percent at SR2,291, Saudi Basic Industries Corp. (SABIC) plunged 4.95 percent to SR1,459, Saudi Electricity Co. (SEC) fell 4.68 percent to SR163, and Saudi Telecom Co. (STC) dove 4.91 percent to SR930. “Luckily, traded volumes are low. This indicates that major investors are not getting dragged into the panic that is hitting retail investors,” the trader said.
“This should awaken retail investors to the fact that this is not probably a good time to sell especially with big investors staying on sidelines,” he added.
Riyad Bank Chief Economist Khan Zahid said the panic selling was done mainly by small traders and the buying by big traders.
“This pattern has continued in the subsequent market swings, with small trades dominating the downturn days and big trades dominating the pullback days,” Zahid said. “We don’t know how long or how deep this correction can go. But we know that the downward potential is significant”.
Because of the bourse’s high valuations, big traders who entered the market early, have made more profits than the rise of the index alone suggests, Zahid said.
“Unfortunately, there was some evidence of some big investors selling on March 7
and 8, and to some extent on March 3, when the market fell but average trade size did not,” he said.
Chief financial analyst for Bakheet Financial Advisors, Hisham Abu Jamea, said the correction could continue for two more weeks. “Investors have to stop and think and review their portfolios calmly.”