The slide on the Saudi stock market has led to some members of the Shoura Council to demand government intervention. Such a call cannot be supported. How the stock market performs is not the government’s responsibility. In a free-market economy, prices can go down as well as up. Investors have always known there is a risk. They simply want someone else — the government — to pick up the tab for losses that are their own responsibility and no one else’s.
Did they complain or congratulate the government over the heady 103-percent rise last year or the even more dramatic 86 percent rise in 2004? Not a squeak was heard. On the contrary, the business community has been the most vociferous in complaining about red tape and the incompatibility of state-owned enterprises with a free market. Yet now when there is a slight problem, they run to the government like children to their mother.
What makes matters all the more exasperating is that they did not pay the slightest attention to the warnings late last year about market overheating, shares being overpriced and an adjustment on the way. The Saudi media was full of it, this paper included. They ignored the alarm bells, so convinced were they that the Saudi stock market was a cash fountain that would flow ceaselessly.
The government has made it clear it will not intervene. Rightly so, not simply because intervention would not work — Kuwait pumped money in to stop the slide there to no effect whatsoever — but because it would destroy the principles of the free market and of individual responsibility for one’s investments. The government’s job is simply to ensure that nothing illegal is happening.
The drop at the moment is 11 percent on the same period last year. Compare that to the massive gains last year and the year before. Any investor who has been in for a while is still way ahead. Recent investors who went in on the high prices of late last year will have their fingers burned, but they were warned.
This is no mega crash; the market is simply readjusting to overpriced shares, not just here but throughout the Gulf. Investors will get over it if they keep their wits around them. For those who imagined that the stock market was an unstoppable gold mine of one short-term gain after another, it has been a harsh but necessary lesson on investment.
It will be sad if those who got burned now turn their backs on the Saudi market and in future invest only in New York, London or Tokyo. They are just as capable of losing money there as gaining it. It is not where they invest; it is how they invest — and the Saudi market is still going to grow. There is going to be massive growth ahead here, but investors have to act wisely. If everyone jumps into one sector, such as telecommunications, or even worse, one company, at the same time, fingers will again be burned. What happened here is exactly what happened in the past, from tulips to dotcoms: too much enthusiasm, too many investors crowding the scene, not enough common sense.
