RIYADH, 5 December 2004 — Saudi shares dropped 5.48 percent yesterday as the value of all but one of the 72 companies listed on the bourse tumbled, led by a weak performance of blue chip stocks. Analysts attributed the fall to speculative trading and declining oil prices.
The Tadawul All-Shares Index (TASI) closed at 7,711.54 points, down from 8,158.52 points in the morning, according to its website. Saudi Basic Industries Corporation (SABIC) and Saudi Telecom Company (STC), each representing 20 percent of the market capitalization, lost 8.62 percent and 5.35 percent, respectively.
“With oil prices coming down, the market thinks it’s time for a correction,” said one Riyadh banker, who predicted the index might lose 10 to 12 percent in all. “The market has just gone up a bit too much in the last month,” he added.
Global crude prices shed more than 13 percent in the three days to Friday, triggered by news of an unexpectedly sharp gain in US petroleum stockpiles.
New York’s main contract, light sweet crude for delivery in January, fell 71 cents to $42.54 a barrel. In three days, New York crude tumbled 13.4 percent and Brent North Sea crude dropped 79 cents to $39.36 — a 13.5 percent decline in three days.
But analysts also put the blame for falling prices on big sales made by major speculators and dealers, who hold 30 to 40 percent of stocks. These players had abandoned the market for sometime in the hope of making purchases at lower prices.
The Arab world’s biggest market was led downward by a fall in petrochemical giant SABIC, the largest listed firm in terms of capitalization, which shed more than seven percent at one stage. Samba Financial Group also fell about seven percent.
“The market has been rallying for the last 11 or 12 weeks,” said Abdul Wahab Abu-Dahesh, senior economist at Riyad Bank. “There’s been profit-taking since the middle of last week.”
The Saudi bourse has been on the rise since 1999 until the end of November this year.
Many dealers had expected an imminent fall as they believed it was impossible for the market to grow forever but the fall came later than they expected.
The market was growing even after Eid Al-Fitr holidays without any major fall. The dealers expect the market to rise again when the results of major companies are announced within the next few weeks.
Analysts believe that the market decline would not continue if oil prices remain at $30 per barrel. They expect SABIC to make a profit of between SR13 billion and SR14 billion and Saudi Telecom to earn a profit of SR10 billion. This will again push the market to new heights.
The market hit a record of 8,385 points last Monday but eased toward the end of the week, matching a slide in world oil prices. The Saudi bourse is still up nearly 74 percent since the start of the year after a 76 percent gain in 2003. “This correction was triggered by the oil prices but it was waiting to happen after the recent gains,” said Abdulaziz Al-Dukhail of the Consulting Center for Finance and Investment.
The price/earning ratio stood at 24.6 before yesterday’s fall, significantly higher than their 10-year average of 15.3, according to a report published by Riyad Bank.
But Dukhail said blue chip firms were robust and investors were still expecting strong yearend profits.
“This is not a structural problem. The main companies which form the backbone of the market are solid,” he said. “There is no reason for this to lead to any collapse.”
SABIC, whose net profits doubled in the first nine months of 2004 to SR9.56 billion ($2.55 billion), was one of the biggest losers, shedding 8.62 percent to close at SR795. The Saudi bourse’s total capitalization is of over SR1 trillion.
Riyad Bank was another heavy loser shedding 7.25 percent to close at SR537. Several cement firms, among the biggest gainers last week, lost around seven percent.
The Kingdom’s Capital Market Authority (CMA) recently announced three important executive bylaws to regulate the market, encourage the public to invest in stocks with confidence and prevent fraudulent practices. The new laws regulate flotation of bonds, set out the principles for the enrollment of bonds and elucidate market etiquette.
Jemaz Al-Suheimy, head of the authority, highlighted the significance of the three laws, saying they would protect investors and preserve market credibility without putting any unacceptable burden on investors, intermediaries and financial consultants. He said the CMA was keen on speeding up the shift to the new capital market system.
