RIYADH, 18 April 2006 — Saudi stocks tumbled to an eight-month closing low yesterday as a tentative rebound ran out of steam and private funds dumped shares, prompting panicky retail investors to bail out too.
The main Saudi index ended 3.93 percent lower at 14,203.74 points, its lowest close since Aug. 13 and more than 32 percent below its peak in February. Earlier in the session the index dropped as low as 13,779.59 points, breaking below the 14,000-point level for the second day running.
The heavy fall will cast a shadow over other Gulf bourses today — most gained ground yesterday, buoyed by a tentative Saudi recovery in morning trade, and were closed by the time Riyadh shares resumed their sharp decline.
Markets across the region have been nervously watching the Saudi bourse since it began taking a battering a week ago. The crash was prompted by a struggle between wealthy speculators and regulators trying to stamp their authority on the bourse. “Investors may be panicked,” said Hani Baothmane, managing partner in Al-Khabeer Financial Consultancy. “Nothing justifies what’s happening. The good side is that turnover is relatively (strong) so there are people who are actually buying.”
A senior trader said funds were behind much of the selling. “Private funds are selling, we are talking of funds holding SR200-SR300 million ($53-80 million),” he said. “It’s not clear why they are doing this, whether it’s a trick to get people to sell cheap, so they can accumulate stocks, as happened several times in recent days”.
Shares began to fall a week ago after the Saudi market regulator suspended two dealers on suspicion of market manipulation. The market’s previous tumble in February and March was also caused by a tussle between speculators and regulators, after the authorities tried to reduce the daily trading band. Analysts said the battle was not over.
“The market is dominated by speculation mainly by big players,” said Ahmed Ghandour, financial analyst at Bursah Expert. “As soon as they make some profit they pull out, which does not help assure retail investors.”
Analysts said there was some selective buying as investors took advantage of cheaper prices. But compared to other emerging market assets, Saudi stocks remain very expensive.
“The volatility is the highest I’ve seen in the last year. The daily fluctuations are at the highest levels,” one Saudi analyst said. “This is because there is no confidence.”
Blue-chip petrochemical firm Saudi Basic Industries fell 7.27 percent, but Saudi Telecom bucked the downward trend and was up 1.53 percent.
In Kuwait, the stock market rose 1.26 percent, but closed while Saudi shares were still in positive territory. On Sunday, the market fell 3.15 percent, its biggest single-day decline since a sharp regional drop on March 14.
Analysts also predicted more volatility in Kuwait. “The market is currently in a tug-of-war,” said Waleed al-Houti of Securities Group. “Company profits, higher oil prices and liquidity push the market higher,” he said. “But on the other hand there’s the regional situation with Iran, and the psychological impact of declines in bigger markets like Saudi Arabia.”
Dubai’s bourse climbed 0.76 percent to 644.76 points. Market heavyweight Emaar Properties climbed 1.2 percent and its subsidiary Amlak Finance rose 4.24 percent.
But Saudi market is also expected to weigh on UAE markets today. Hany Hussein, portfolio manager at Mashreqbank in Dubai, said UAE markets were increasingly tied to Saudi Arabia.
“Today we were down because of Saudi Arabia. In the past few days we have seen the fate of markets in the UAE becoming more related to the fate of the Saudi (market),” he said yesterday.
