Saudi analysts are blaming internal and external factors, including the drop in oil prices, for this week's decline in the Saudi stock market.
The Tadawul index slipped 0.5 percent yesterday to snap a two-day rally that followed Saturday's four-month low.
Ali Al-Tawati, an economics analyst, said the recent downturn is a natural reaction following the announcement of the result of the first quarter.
"What is happening in the market is what we call reorganization of portfolios," Al-Tawati said.
"Following the announcement of the first quarter gains, company managers started to reorganize their portfolios based on the stock growth potential."
One third of the shares traded on the Saudi stock market are lightweight stocks, Al-Tawati pointed out. They either have a weak or fluctuating market value.
For instance, he said the insurance sector is one of those traded shares that does not exist in reality therefore its market value is fluctuating.
The value of those shares tends to go up easily, yet declines sharply. Those shares are good for small investors as well as immature speculators who aim at quick gains, but not for the market stability, he said.
Following the remarkable performance of the Saudi stock market during the first quarter of 2012, speculators were surprised with a sharp decline in the market's index that exceeded 4 percent of its value.
The decline was almost 300 points within two days. The market hit a bottom close to 6,000 points for the first time during the last four months.
Another economic analyst, who asked for anonymity, blamed Saudi small speculators for the decline.
He said investors have not learned their lessons from the 2006 disaster when the stock market lost trillion of Saudi riyals.
"Summer is not the best time for speculating or investing," he said.
"Small Saudi investors are still running after quick and easy gains and forget all about the big picture."
He characterized the Saudi stock exchange as a dependent market and said it lacks identity and is subject to changes in international markets.
Al-Tawati also discussed the relationship between the Saudi and international markets.
Despite the strength of the general Saudi economy, it is still affected by the international financial crises.
He cited the financial crisis in Europe, the announcement of the disappointing employment figures in the United States and the low performance of the Chinese economy as major external factors caused the decline in the Saudi market value.
He, however, pointed out the new crucial factor in this decline is the change in oil prices.
"Our economy has failed to diversify itself. It is still an economy that relies on oil for 90 percent of its revenue," Al-Tawati said.
This makes the Saudi economy subject to international supply and demand, he said.
The Saudi stock market, he added, is led by the petrochemical sector that has witnessed a similar decline due to political changes.
He said some countries, such as the US and China, 'overanalyzed' the consequences of the Arab Spring and increased their demand forecasts for oil. The relative stability in the region and the return of Libya as a main player, however, increased the daily oil supply to 1.5 million gallons.
This increase, he said, was preceded by the discovery of a huge oil reserve in countries that had been anticipating a war against Iran.
Moreover, the positive improvement in tension between the West and Iran has also led to a decline in the demand and consequently price.
Al-Tawati said he could not speculate about the direction the oil prices would take, and consequently the stock market's performance.
"No one knows at what level this decline is going to stop," he said.
Speculators, oil volatility blamed for Tadawul woes
