14 April 2012
JEDDAH - Stock market trading in Saudi Arabia could slow in coming weeks because of the risk that authorities may crack down on rampant speculation, but the market's long-term uptrend is unlikely to be reversed, fund managers and analysts say.
Fund managers said official displeasure with speculation could cause some big individual investors to cut back on their most flamboyant trading, reducing turnover. But they said a major exodus of money was unlikely.
King Abdullah, Custodian of the Two Holy Mosques, has ordered the Capital Market Authority (CMA) to take action against manipulation of the market.
The stock benchmark Tadawul All Share Index tumbled more than 7 percent from peak to trough over the past week, because of weak global markets, but it rebounded sharply from its lows Wednesday, ending up 0.3 percent on the day in rising turnover. Banks led the recovery.
And some analysts think signs that authorities are prepared to police the market could increase confidence among investors.
"In the long run it's a good thing to know they will investigate and go after people - small investors will be much more comfortable," said a Saudi-based portfolio manager who asked not to be identified.
Another theory among fund managers is that authorities want to clean up the market in preparation for opening it to direct investment by foreigners.
The market's spectacular rally over the last several months has lured large amounts of fresh money, and may have encouraged trading abuses by some investors. The stock index has gained more than 25 percent from trough to peak over the past four months.
Daily trading volumes have multiplied several-fold; on a day late last month, turnover hit a five-year high of SR21.6 billion ($5.8 billion). Many of the stars of the rally have been small-capital stocks which analysts say have limited fundamental attraction and are moving largely in response to their own momentum as well as rumors.
In late March, the chairman of Jeddah Chamber of Commerce and Industry, Sheikh Saleh Kamel, described the market as a "rigged balloon" and warned that investors could lose their savings chasing overpriced shares.
Sheikh Saleh suggested that the government stop banks from lending money to clients for stock market speculation, although there is no sign so far that banks have cut back such lending.
The market, which is the largest bourse in the Arab world, crashed in 2006. In March this year the CMA said a committee had found investor Salam Al-Nuaim responsible for market manipulation and fraud committed in 2007 and 2008. It ordered him to hand over revenues acquired as a result of the violations, amounting to SR2.3 million, and imposed a year-long trading ban on him.
Also, analysts believe the market is now much less richly valued than it was at its peak in 2006. For example, bank earnings are growing rapidly and the valuations of many bank shares are still in the lower half of their historical ranges.
JEDDAH - Stock market trading in Saudi Arabia could slow in coming weeks because of the risk that authorities may crack down on rampant speculation, but the market's long-term uptrend is unlikely to be reversed, fund managers and analysts say.
Fund managers said official displeasure with speculation could cause some big individual investors to cut back on their most flamboyant trading, reducing turnover. But they said a major exodus of money was unlikely.
King Abdullah, Custodian of the Two Holy Mosques, has ordered the Capital Market Authority (CMA) to take action against manipulation of the market.
The stock benchmark Tadawul All Share Index tumbled more than 7 percent from peak to trough over the past week, because of weak global markets, but it rebounded sharply from its lows Wednesday, ending up 0.3 percent on the day in rising turnover. Banks led the recovery.
And some analysts think signs that authorities are prepared to police the market could increase confidence among investors.
"In the long run it's a good thing to know they will investigate and go after people - small investors will be much more comfortable," said a Saudi-based portfolio manager who asked not to be identified.
Another theory among fund managers is that authorities want to clean up the market in preparation for opening it to direct investment by foreigners.
The market's spectacular rally over the last several months has lured large amounts of fresh money, and may have encouraged trading abuses by some investors. The stock index has gained more than 25 percent from trough to peak over the past four months.
Daily trading volumes have multiplied several-fold; on a day late last month, turnover hit a five-year high of SR21.6 billion ($5.8 billion). Many of the stars of the rally have been small-capital stocks which analysts say have limited fundamental attraction and are moving largely in response to their own momentum as well as rumors.
In late March, the chairman of Jeddah Chamber of Commerce and Industry, Sheikh Saleh Kamel, described the market as a "rigged balloon" and warned that investors could lose their savings chasing overpriced shares.
Sheikh Saleh suggested that the government stop banks from lending money to clients for stock market speculation, although there is no sign so far that banks have cut back such lending.
The market, which is the largest bourse in the Arab world, crashed in 2006. In March this year the CMA said a committee had found investor Salam Al-Nuaim responsible for market manipulation and fraud committed in 2007 and 2008. It ordered him to hand over revenues acquired as a result of the violations, amounting to SR2.3 million, and imposed a year-long trading ban on him.
Also, analysts believe the market is now much less richly valued than it was at its peak in 2006. For example, bank earnings are growing rapidly and the valuations of many bank shares are still in the lower half of their historical ranges.
© The Saudi Gazette 2012
