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MENAFN - Arab News - 04/10/2007

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(MENAFN - Arab News) JEDDAH, 4 October 2007 — The Saudi stock market took a tumble yesterday as the Tadawul All-Share Index (TASI) dropped 80.11 points to 7,765.17. Shares of only five companies rose out of 104 companies traded yesterday. In the banking sector, shares of Samba Financial Group edged higher by 0.20 percent to SR123.25. In the industrial sector, shares of Saudi Cable Co. increased to SR40 and that of Alabdullatif Industrial Investment Co. to SR58.75. The other two gainers were the National Shipping Company of Saudi Arabia and Malath Cooperative Insurance and Reinsurance Co.

The stock market turnover was over SR4 billion yesterday.

After falling 46.98 percent in the first half of this year the Saudi stock market continued its downward spiral. The TASI closed at 7,833.42 points at the end of the first nine months of 2007, as compared to 11,410.04 points for the same period of the previous year, a drop of 31.35 percent and lower by 4.78 percent over August 2007. On an YTD basis TASI lost 99.87 points (1.26 percent). Highest close level for the index during the first nine months was 8,783.43 points as on March 20, 2007.

According to a report the Saudi Stock Exchange (Tadawul) released on its website on Tuesday, the market capitalization at the end of the first nine months of this year declined by 22.49 percent over the same period of the previous year to reach at SR1.330 trillion (354.62 billion).

According to Dr. Mohamed Ramady, finance and economics professor at King Fahd University of Petroleum and Minerals, the continued erratic and weak performance of the Saudi stock market is to be expected." The small investor is still traumatized by the events of last year, which saw massive corrections on the back of speculative trading. The new IPOs (initial public offerings) have done little to add a greater degree of market confidence, which is surprising, considering there is more depth and variety in the number and quality of shares traded.

At the same time, the announcement of GCC national participation and the news of the implementation of a new trading system has not done much to instill confidence. The reverse seems to have happened in the case of the Capital Market Authority (CMA) announcement of a new, more transparent trading system — some saw this as the beginning of a more rigorous regulatory regime and decided to cut and run before being exposed by the new system. Maybe the announcement could have been explained better by the CMA, which is still seems media shy, but under a more so-called normal trading environment, the markets would have rallied on such welcome news. In Saudi Arabia the opposite happened."

The total value of shares traded for the first nine months reached SR2 trillion (534.48 billion), a drop of 55.89 percent over the same period of the previous year.

The total number of shares traded fell 24.59 percent to 44.72 billion for the first nine months as compared to 59.30 billion shares for the same period of the previous year.

The report said the total number of transactions executed during the first nine months dropped by 30.40 percent to 53.41 million as compared to 76.73 million trades for the same period of the previous year.

The number of trading days during the first nine months were 191 against 206 during the first nine months 2006.

The total number of companies reached 104 at the end of September as 20 new companies were listed on the Tadawul during the last nine months.

Ramady added: "Investor education and taking a long-term view have still some way to go to ensure a steadier market performance. Just look at the Northern Rock episode in the UK. Investors started to panic, and market contagion was shaping up, but a combination of Northern Rock company announcements, clear cut media management and a firm Bank of England position helped to reverse a shaky stock market which has now recouped all its losses.

In Saudi Arabia, the economic fundamentals are sound, the country has just announced massive budget surpluses, and mega projects — the feed chain of companies and business activity — is taking place, but local investors are acting as though a recession is around the corner and latching onto any news of falls in corporate profits, such as the latest Saudi bank's quarterly results, to justify market exit and quick profit-taking. The fall in bank profits is to be expected due to a fall in commission and trading related income, but once again, Saudi investors do not seem to differentiate between short term events with longer term underlying fundamentals. It has become a weary cliche, but this erratic behavior is going to be with us for a while."


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