JEDDAH, 27 February 2006 — Saudi stocks appeared to have undergone a major correction yesterday as the Tadawul All-Share Index (TASI) dived 980.18 points or 4.75 percent to close at 19,654.68.
Analysts have warned of corrections after Saudi stocks repeatedly hit record highs in recent months. The index gained over 103 percent in 2005 and 17.60 percent so far this year.
To curb volatility and speculation, the Saudi Capital Market Authority (CMA) reduced the band for maximum share price fluctuation from 10 percent to 5 percent effective Saturday.
The market turnover was also a meager SR10 billion yesterday compared to SR28.26 billion on Saturday and SR239.36 billion last week.
All 78 stocks listed on the market dropped yesterday. The major Banking and Industrial indexes plunged over 2,000 points each.
Salim J. Ghalayini, a Riyadh-based investment/financial consultant, told Arab News Saudi investors were not used to such performance, and many of them were in a state of shock and denial, trying to comprehend what happened and why. “Bravo, congratulations CMA, for your recent decision on reducing the volatility limit to 5 percent — which apparently came in time. They have probably saved investors around 5 percent of their portfolio value and hundreds of millions of riyals of potential market capitalization loss.”
Although the basic Saudi market fundamentals are still solid and sound, the results of recent speculation and some manipulation have placed the market in a “sensitive” zone. It has released control from “business performance” and passed it to “investor emotion or sentiment.” Accordingly it becomes very sensitive to any external factor.
“Money likes safety and security and gets scared quickly by the lack of it. The recent unfortunate events in the Eastern Province, compounded by news and reaction from international media, triggered the panic which led people to start selling. Panic was fueled by those who have invested borrowed money, so they also ran for cover. The coming few days and weeks will probably tell us that many investors have over-reacted in their run for cover, and meanwhile the 5 percent CMA imposed limit will do a good job to cool people down,” Ghalayini said.
