RIYADH, 30 March 2006 — The rally in Saudi shares entered its third day yesterday but trade was thin with investors clinging to stocks in the hope of making a profit as the market pulls out of a sharp decline.
The Tadawul All-Share Index (TASI) closed 4.57 percent up at 17,060.34 points, having risen as much as 4.84 percent during the session. Turnover reached SR8.9 billion ($2.4 billion) as 15.5 million shares changed hands, mainly in small cap stocks. Demand for blue-chips was dwarfed by the number of shares up for sale. Before the correction, daily turnover averaged SR40 billion. All 79 listed stocks closed in the black, with 59 of them rising by at least 4.8 percent.
Traders said big investors and funds kept pushing blue-chip prices by nearly limit up amid occasional profit-taking by retail investors. “Investors know the market can continue rising at these rates for some time but ... one or two big selling orders can trigger a domino effect of profit-taking,” a senior trader said. “Still, this is unlikely to happen before the start of next week,” he added.
Turki Fadak, from the Saudi Economics Association, said it was normal for stocks to rise sharply as a lot of investors are exposed to high prices. “When the market was declining there was little selling because they could not sell at low prices. So this is healthy,” he said. But investors have grown more cautious. “So this rise will not last for too long, profit-taking should start next week,” Fadak added.
Stock prices movements bare little relation to fundamentals in the Saudi market where there is virtually no research on listed firms. More than 3 million Saudis trade regularly, most of whom have little understanding of market mechanisms.
Fadak said the upcoming announcement of first quarter results will play a far bigger role in deciding on the fate of the index. “If the index reached 20,000 points without crucial change in fundamentals, it will lead to another sharp decline,” he added.
The largest listed firm, Saudi Basic Industries Corp. (SABIC), rose 4.97 percent to SR1,647 and Saudi Telecom Co. closed 4.92 percent higher at SR1,087. Blue-chip Saudi Electricity Co. led trade with nearly 18 percent of all traded shares. It climbed 4.5 percent to SR139.
The Arab world’s largest bourse has been rising since Monday after the government announced measures to end a downturn that started in late February and slashed more than a third off the bourse’s capitalization. The measures include a plan to set up a market maker fund, a 5-for-1 share split and the reintroduction, from Saturday, of a 10 percent trading band for share movements.
The market downturn began a day after the band was cut to 5 percent to check wild price swings at a time when speculators ruled the bourse, driving up valuations and making the bourse one of the most expensive emerging markets in the world.
The bourse will close for one day on Thursday to make arrangements for the measures and trading will resume on Saturday with the share split applied to agricultural, services and insurance stocks.
The market will close on subsequent Thursdays until the share split is applied across the market. Several analysts and newspapers have warned that speculators would return to the bourse after the new measures were announced.