"Investors abhor uncertainty. We have repeatedly seen during the global crisis that unexpected shocks to the system tend to produce an initial reaction of large-scale selling. Once a situation and its implications are better understood, investors will once again focus their attention on the fundamental drivers," said Jarmo T. Kotilaine, chief economist at the National Commercial Bank.

In general, investors have become better at differentiating between regional economies. However, just as the malaise linked to the defaults in Dubai and elsewhere in the region had a broader impact on the mood, political uncertainty can play a similar role. On the other hand, the upward pressure, however temporary, that the situation has put on the price of oil should ultimately benefit the Saudi market, Kotilaine added.

"This is just panic selling", a small-time investor who wanted to remain anonymous told Arab News. "Such things happen everywhere. Markets react to any uncertainty whether it is political or economic. What I will do is wait and see till the market recovers," he said.

Referring to the unrest in Egypt, Faisal H. Alsayrafi, managing director and CEO of the Financial Transaction House, said: "Saudi Arabia and Egypt have very strong relations. It seems investors have overreacted to the events there. This is more or less a panic selling than fundamentals … The Kingdom's stock market is very strong like its economy. I am sure the market will improve once things stabilize elsewhere and uncertainty ends.”

Sectoral activity for the day was negative. The leading petrochemical sector index fell 8.37 percent, while the banking and financial sector was down by four percent. The real estate fell by 6.64 percent. The insurance index fell 9.12 percent, telecoms 6.74 percent, investment 8.62 percent, and building and construction 7.8 percent.

Despite the fall in the Tadawul index, the value of traded shares reached SR6.30 billion Saturday.

“There was a huge number of stocks being offered for sale at low price on Saturday accompanied by low demand for stocks. I believe the situation in Egypt had put negative impact to the value of stocks in some sectors such as insurance and hotels in addition to giant Saudi companies that operate in Egypt, such as Almarai and Savola,” said Ahmed Al-Hamamy, a Saudi investor.

However, he found it unreasonable for the whole market to drop. Leaders in the Saudi stock market should maintain the value of stocks because there was no direct effect of the situation in Egypt. Al-Hamamy expects the market to stabilize by Monday.

According to professor Mohamed A. Ramady of King Fahd University of Petroleum and Minerals (KFUPM), the sharp drop in the Saudi stock market was to be expected. “The Saudi stock market's plunge on the first trading day of the week after the dramatic events in Egypt, as well as the poor showing of the European and US markets, is a natural reaction to the uncertainties now prevailing in the region despite some high dividend yields and low price/earning ratios for blue chip Saudi stocks,” he said.

“What is more worrying is for the current feeling of geopolitical uncertainty to continue, causing the Saudi market to wobble between the 6,300- 6,700 range for the next few months, until investors realize that Saudi stocks are under priced, irrespective of regional tensions.”

The drop in the TASI offered a window into the potential battering that could emerge when other regional markets — Abu Dhabi, Dubai, Kuwait, Doha, Muscat and Manama — reopen Sunday after a weekly break.