JEDDAH, 18 December 2006 — The burning question in the hearts and minds of most investors across the Kingdom isn’t about social issues or even the current political situation in the region. Instead the majority of Saudis simply want to know what’s taking the steam out of the Saudi stock exchange, or Tadawul.
For the last few months, the Tadawul All-Share Index (TASI) has certainly taken its share of investors on a head-spinning rollercoaster ride of financial ups and downs. It’s been blamed for a series of problems, from a hike in the country’s divorce rate to an increase in heart failure.
Players of the market who once thought of themselves as savvy traders investing everything they owned (and even what they didn’t own by taking out hefty bank loans) have now come to grips with the grim reality that the Tadawul has trampled them.
“I lost about SR900,000, my son lost SR200,000 and my husband lost SR600,000,” said one Saudi investor who didn’t want her name revealed. “If it wasn’t for my faith in Allah and the fact that I can say thanks to Him for having a home, car, and necessities of life, I don’t know how I would handle the situation. There are so many that have lost their entire livelihoods.”
The trail to tragedy began two years ago when the Tadawul began posting record-breaking index numbers fueled by the increasingly prosperous Saudi economy. Since then the topic of investing has become a trendy conversation piece among men’s and women’s groups alike with many gathering to discuss the latest stock quotes over tea or Arabic coffee in cafés, online, or even by SMS messaging.
People have said that events in the US-led war in Iraq can be used as a weather vane for stock prices. Others say predictions can be made based on world oil prices. Still others insist that doing intense research of the company’s past performance from the previous year is a good indicator of how to trade.
For a more accurate perspective on the way we should be investing, Arab News spoke with Muhummad Shemambri, financial analyst and owner of Shemambri Investment Co., in Jeddah.
“I don’t believe there is any relation between the Iraq war or oil prices or the like,” said Muhummad Shemambri.
“The major indicators affecting the Tadawul involve supply and demand, consumer confidence in the market and the structure of the market itself. The recent decreases or “crashes” have occurred due to an increase in the price-to-earnings ratio a similar phenomenon to that of the markets of both Kuwait and Dubai.”
“I agree,” said Eyad Shaqsah, senior vice president of Financial Transaction House. “The reason for the slow movement of the market has mainly to do with consumer confidence. Many small investors are now realizing their money loss and are very apprehensive in attempting to trade again. Still others who have bought stocks at a low price ultimately saw prices reduce further and are now ‘stuck’ in the market basically until prices increase enough for them to sell. The end result purely amounts to low or no cash being injected into the Saudi stock market.”
Shedding some light on the situation with a possible solution to the vicious cycle, Hani Genena, senior economist at National Commercial Bank told Arab News, “Saudi Arabia is moving from a stage of export-driven recovery and prudent financial stimulus in the market into a stage of sustained fiscal stimulus, capacity constraints, and investment-driven growth.
The conclusion of the analysis was arrived at using the 2006 results and the 25 percent fall in TASI since the end of 3Q 2006.
Trailing twelve month P/E multiples have converged to the mid-teens and seem attractive from a historic perspective, but we urge investors to put into consideration, one, comparable valuation multiples versus peer groups and, two, the sectors that are most likely to benefit from the current and upcoming stage of the business cycle such as banks and cement.”
To break it down into simpler terms, investors who’ve entered the market in the last 2-3 weeks should hold their positions until the first of 2007 when a new phase of growth will take over the business cycle giving way to an investment-driven increase. And if that doesn’t cure the ailing Tadawul, we all just might have to go back to working for a living, what a concept. Get well soon TASI!
