JEDDAH, 28 February 2006 — After a period of unjustified rise in stock prices, the Saudi stock market continued its plunge yesterday. The Tadawul All-Share Index (TASI) lost a massive 1,894 points in two days after hitting a record high of 20,634.86 on Saturday. Yesterday, the index closed at 18,740.20, down 914.48 points or 4.65 percent.
All the indexes went red and the Industrial and Banking were the most affected in yesterday’s trading. The Industrial Index closed 2,301.58 points down at 44,178.05 and the Banking Index fell 1,908.55 points to 44,952.78.
Reacting to the turmoil, Faisal Alsayrafi, president & CEO of Financial Transaction House, said: “Financial advisers and money managers have long warned against an impending correction and urged investors to react accordingly. For six straight weeks, TASI surged unjustifiably and prematurely and met a reciprocated exhaustion point. Almost all technical and fundamental indicators identified the ballooning and overbuying conditions of all shares.”
“The drop was marked by a very thin volume relative to average trading ranges, a critical factor that refutes the notion of a bear market. The ‘smart money’ managed by funds, institutions and seasoned investors, representing the bulk of stock trading were not among the participants of this drop and the rush was sparked by small and margin trading investors with minimal trading volumes,” Alsayrafi added.
He said: “Wide bid-ask spread was clearly evident and oddly the market was highly illiquid. This is mainly due to the CMA’s leashing efforts to stretch out volatile speculation and price trends. Stocks were not suspended at 5 percent as commonly perceived. Only sell orders below 5 percent from opening price were postponed. However buy orders were not sufficient to meet the selling turmoil.”
All the 78 stocks dropped yesterday also in a thin SR5.29 billion market turnover.
Riyad Bank Chief Economist and Vice President Khan H. Zahid said the market was not based on fundamentals. So there was always a fear that the market can fall.
“The surge in stock prices does not reflect the companies’ performances. Investor sentiment plays a key role in the market. When the market falls, investors get scared and start selling shares which affects the market,” added Zahid. However, “the Kingdom’s economy remains strong and liquidity is still high. Thus, the market can pull back again.”
Mark Hanson, head of corporate finance at Saudi Hollandi Bank, said the sudden fall in stocks was due to the attack on an oil processing facility at Abqaiq. “The attack could have short-term effects on the market but I don’t believe it will have a long-term one, and the market will improve soon,” he added.
