When Saudi stocks crashed in March, the Saudi authorities reacted with two ad hoc measures: Allowing resident foreigners of Saudi Arabia to invest in the local stock market, and enabling stock splits so that the price of individual shares became more appealing to small retail investors. Both measures were meant to increase liquidity and stabilize a badly shaken market. While these measures might have managed to cheer up investor sentiment in the short run, there is no reason to believe that foreigners will buy Saudi stock in any meaningful quantities at current valuations.

There are two reasons to buy a stock: Either it has an intrinsic value or it doesn’t — but one finds “a bigger fool” to sell it to at a higher price. When the risk-adjusted expected future earnings of a company are attractive and materialize during the holding period of the stock, value investors like Warren Buffet do not worry about the ups and downs of the stock market as they can be confident to finally reap an attractive return on their investment. The bigger fool, on the other hand, only stays confident as long as he finds another bigger fool to sell to at a profit. It is obvious that the Saudi stock market has operated on the latter investment assumption rather than the former one in the last year.

Will resident foreigners step into the “bigger fool supply gap” that caused the March crash and therefore keep the bull market running? Hardly likely, as price earnings/ratios were three times higher and price/book ratios nearly six times higher even after the crash than in other emerging markets. And the market seems to have lost its overt confidence overnight, hardly making for the kind of inspiring public mania that would inspire the imaginative herd of foreign investors to rush into the Saudi stock market. Foreigners won’t be eligible for the thus far lucrative initial public offering (IPO) game anyway, and will only be allowed to invest in certain companies. Of course, there is a strong likelihood that many of these companies will of a lower quality kind while more solid blue chips continue to be off limits to foreigners. Apart from that, some legal issues remain unresolved, and are likely to deter foreign buyers as well. It is not clear, for example, whether they are allowed to continue to hold stocks once their residency expires or is revoked. But most importantly, new regulations don’t apply to foreign institutional investors but only to foreign residents of Saudi Arabia.

Thus, international funds providing crucial liquidity to other emerging markets will continue to stay outside the Saudi market, although they might show an appetite for quality blue chips like Saudi Basic Industries Corp. (SABIC) once prices are more reasonable.

Even if the foreign residents of Saudi Arabia were to fall for this unattractive offer, many of them belong to lower income brackets and have modest disposable incomes to funnel into the stock market as compared to the hopes that are attached to the partial opening of the market. According to a Samba Financial Group estimate, $13.7 billion of the approximate $35 billion in expatriate earnings are remitted to the expatriates’ countries of origin. Of the remaining $21.3 billion, not more than 10 percent could be invested, and more realistically, only $1 billion could be expected to be spent annually in such investments — a miniscule sum when compared to a stock market capitalization of over $600 billion. Finally, it is quite funny that the relevant investment law hasn’t yet been translated. Either the authorities have a misplaced trust in the Arabic skills of Saudi-based foreigners or they do not expect too much from this law to begin with.

In the end, it is good that small retail investors of foreign origin will stay out of the Saudi market. It is currently no place for the long-term investment of life savings. Too many workers’ family members in Asia depend on the remittances of their hard-working relatives in the Kingdom, and substantial losses would hurt them much more than they would a high net worth speculator who has placed some hapless bets in the stock market.

(Dr. Eckart Woertz is a program manager at the Dubai-based Gulf Research Center.)