"Investors abhor uncertainty. We have repeatedly seen
during the global crisis that unexpected shocks to the system tend to produce
an initial reaction of large-scale selling. Once a situation and its
implications are better understood, investors will once again focus their
attention on the fundamental drivers," said Jarmo T. Kotilaine, chief
economist at the National Commercial Bank.
In general, investors have become better at differentiating
between regional economies. However, just as the malaise linked to the defaults
in Dubai and elsewhere in the region had a broader impact on the mood,
political uncertainty can play a similar role. On the other hand, the upward
pressure, however temporary, that the situation has put on the price of oil
should ultimately benefit the Saudi market, Kotilaine added.
"This is just panic selling", a small-time
investor who wanted to remain anonymous told Arab News. "Such things
happen everywhere. Markets react to any uncertainty whether it is political or
economic. What I will do is wait and see till the market recovers," he
said.
Referring to the unrest in Egypt, Faisal H. Alsayrafi,
managing director and CEO of the Financial Transaction House, said: "Saudi
Arabia and Egypt have very strong relations. It seems investors have
overreacted to the events there. This is more or less a panic selling than
fundamentals … The Kingdom's stock market is very strong like its economy. I am
sure the market will improve once things stabilize elsewhere and uncertainty
ends.”
Sectoral activity for the day was negative. The leading
petrochemical sector index fell 8.37 percent, while the banking and financial
sector was down by four percent. The real estate fell by 6.64 percent. The
insurance index fell 9.12 percent, telecoms 6.74 percent, investment 8.62
percent, and building and construction 7.8 percent.
Despite the fall in the Tadawul index, the value of traded
shares reached SR6.30 billion Saturday.
“There was a huge number of stocks being offered for sale at
low price on Saturday accompanied by low demand for stocks. I believe the
situation in Egypt had put negative impact to the value of stocks in some
sectors such as insurance and hotels in addition to giant Saudi companies that
operate in Egypt, such as Almarai and Savola,” said Ahmed Al-Hamamy, a Saudi
investor.
However, he found it unreasonable for the whole market to
drop. Leaders in the Saudi stock market should maintain the value of stocks
because there was no direct effect of the situation in Egypt. Al-Hamamy expects
the market to stabilize by Monday.
According to professor Mohamed A. Ramady of King Fahd
University of Petroleum and Minerals (KFUPM), the sharp drop in the Saudi stock
market was to be expected. “The Saudi stock market's plunge on the first
trading day of the week after the dramatic events in Egypt, as well as the poor
showing of the European and US markets, is a natural reaction to the
uncertainties now prevailing in the region despite some high dividend yields
and low price/earning ratios for blue chip Saudi stocks,” he said.
“What is more worrying is for the current feeling of
geopolitical uncertainty to continue, causing the Saudi market to wobble
between the 6,300- 6,700 range for the next few months, until investors realize
that Saudi stocks are under priced, irrespective of regional tensions.”
The drop in the TASI offered a window into the potential
battering that could emerge when other regional markets — Abu Dhabi, Dubai,
Kuwait, Doha, Muscat and Manama — reopen Sunday after a weekly break.
