JEDDAH, 27 March 2007 — The Saudi stock market lost SR81 billion in value in one trading day yesterday taking the Tadawul All-Share Index (TASI) to 8,098.63, down 521.47 points or 6.06 percent.
To put this into perspective and to highlight the volatility of the Saudi stock market over the past one year, market capitalization peaked at SR2.91 trillion in February 2006 and then it slipped to SR1.23 trillion at the end of last year. The market cap was SR1.15 trillion in 2004 and SR2.43 trillion at the end of 2005.
Out of 86 companies traded, shares of only Arriyadh Development Co. rose while all other stocks were in the red yesterday.
According to Mohamed Ramady, visiting associate professor at King Fahd University of Petroleum and Minerals, the sharp fall is both totally irrational and rational at the same time. “The Saudi investors had their fingers burnt in a big way not too long ago and the pain is still fresh in collective memories. As such, there is definitely a herd panic mentality as soon as a downward trend is seen in the market.
What is different about the sharp 6 percent fall in the market yesterday is that it was sustained, unlike the past few weeks, when intra-day trends of small falls and gains were seen, with last minute rallies of a few points just before closing. The difference now is that there is obvious stock market speculation fueled by rumors, which magnify some actual events.”
Ramady added: “The markets have seen the CMA (Capital Market Authority) suspend companies from trading after they announced restructuring plans. The policy of suspension was not felt to be consistent and this caused investor uncertainty.”