The Saudi Capital Market Authority cannot by itself control the stock market in the sense of boosting or fixing the prices of shares. That has to be left to the market. The CMA’s role is to regulate the way dealing is done — by setting out the rules of business and ensuring that those rules are adhered to. That is as far as it goes. But psychology and confidence are decisive factors in the stock market; they can dictate whether there is a bull market or a bear market, whether investors rush to buy, to sell — or just sit, holding on to their shares.
The decision to replace the head of the CMA and appoint Abdul Rahman Al-Tuwaijeri, secretary-general of the Supreme Economic Council (SEC) to the post will hopefully calm public nervousness about the Saudi stock market and stop the continuing fall. The market has reacted positively and surged the 10 percent daily maximum allowed at the close of the morning trading session yesterday. Last week saw prices plummet 21.21 percent; the Tadawul All-Shares Index was just half what it was only three months ago. It has gone on too long — way beyond the readjustment that was needed. Unfortunately, in the same way that so many punters piled in without asking questions, investing their all — and more — in what they thought was a sure-fire way to make easy money, so too they are now desperate to get out, once again without thinking. They need to stop panicking. Prices will recover. The economy is not just sound, it is buoyant thanks to high oil prices. Even if oil prices go down, this year’s budget surplus is going to be massive. The economic future is bright. To sell shares at this point is lunacy.
Replacing the head of the CMA is, however, not all that the government can do to boost both confidence and market activity. A few well-placed government contracts would do wonders; it is what Western governments have been doing for years in times of market crisis. Another boost would come from further privatizations, particularly if initial share offerings were set at enticingly low prices; the government can afford to do so. Investors would flock in. Further deregulation and reforms are also needed. The more regulations are removed, the more investment will flow. The decision to allow expatriates in the Kingdom to own shares was a good move. It makes sense, though, to extend the right to foreigners not resident in the Kingdom.
A lot of people, particularly small investors, have had their fingers very badly burned in the crash; some face total ruin. Questions need to be asked of those who were happy to lend money to people to invest in the stock market, particularly banks. They may be jointly culpable. The banks certainly knew that the market was overheated and there would be a readjustment, possibly even a dramatic one. In other parts of the world where banks lend money either knowing that the borrower cannot afford to repay or that the investment is doubtful, they can be held responsible and forced to pay compensation. There may be a case here built on the same lines.
