JEDDAH, 9 March 2006 — The fluctuation in the Saudi Stock Market (Tadawul) All-Share Index (TASI), which went down sharply yesterday to nearly touch the five-percent minimum limit, has left investors flummoxed. The uncertainty in the market was all the more opaque as the analysts and market-watchers could not explain the current fall, especially as the financial conditions of the market and the economy were buoyant.
The TASI lost 1551.92 points in the last two days and went back to the 17,000s level again after a short mid-week recovery. The index lost 698.91 points on Tuesday and added 853.01 points to its losses yesterday. As it did in the previous day, the market closed with all the indexes in the red yesterday and with no companies gaining. In yesterday’s morning session the TASI closed lower 684.07 points or 3.77 percent to 17,455.89. In the evening, the TASI continued its decline and lost 853.01 points in total or 3.71 percent to close at 17,286.95.
The fall in the share prices yesterday was inexplicable, as there was no clear economic reason for the negative behavior of the Tadawul. This week several Saudi companies and banks reported huge profits and revenues while announcing the distribution of considerable dividends to their shareholders. Moreover, many companies announced going public and many large corporations are expected to be listed this year.
In addition, the stock market liquidity was excellent and the macroeconomic conditions of the country sound and stable. The government reported a surplus for its 2005 fiscal budget and the government’s debt is also shrinking. The monetary situation is stable and foreign reserves of the country are reportedly high.
All the market conditions show that there are other factors contributing to the fall of the share prices. One possible scenario is the strong interference of speculators in the market. For so long the Capital Market Authority (CMA) has been warning that the stock market was affected by speculative trading, and that speculators were behind the unjustified inflation of the share prices.
Two recent developments could have attracted large investors to speculate on the shares. First, the shares of Saudi companies proved to be profitable after many companies reported high profits for 2005. Second, many companies are holding board elections in the coming few weeks. These conditions could have motivated large investors to move to secure as many shares as possible at the lowest costs. Small investors, who see in their shares a lucrative opportunity for wealth creation, were resisting the sell-off pressure of the large investors. Apparently, speculators are trying to force small investors to sell their shares at lower prices.
This scenario was evident in the trading of the Saudi Electricity Company (SEC) shares and on the movement of the Electrical Index this week. Following SEC making SR1.48 billion in net profit and its distribution of SR547 million to its shareholders, the SEC shares were the most traded for the last three days. The Electrical Index was the only index in Tuesday’s morning session to go up near the five-percent maximum fluctuation band and it was the only index to near that level in yesterday’s fall. The index lost 4.97 percent to 3,510.27 yesterday.
Despite the strong results of industrial companies, the Industrial Index was the second most affected yesterday as it lost 2,088.94 points so that the index lost 4,264.71 in the last two days. The index dropped 4.96 percent to close at 42,115.67 with the shares of all the industrial companies falling for the second consecutive day. Saudi Cable Co. announced yesterday that it won a SR185 million contract in addition to its recent contract of SR150 million. Despite the announcement, the shares of the company fell 4.90 percent yesterday to SR349.
Another possible scenario for yesterday’s fall is that speculators want to pressure down the prices before the debut of Aldrees Petroleum and Transport Services Co. (APTSCO) 1.2 million shares in the market next Tuesday. Any debut on the Saudi market normally boosts the TASI and sucks the excess liquidity. Thus, it is in the speculators advantage not to let the prices hike this week before APTSCO’s debut.
