Regional stock markets reached new annual lows in late October and early November. After falling more than 10% in one week, the Saudi stock market fell below the 9000 mark, closing at 8793.61 on November 4. That represented a drop of nearly 50% since the market closed at 16,712.64 points on December 31 last year. The market reached an all-time high of 20,634.86 points as recently as February 25 this year.
The falls came despite the IPO of Al-Babtain Power and Telecommunication Co, which opened on November 4, and the listing of Red Sea Housing. Red Sea’s share price opened at SR 115, and fluctuated wildly before closing at SR 86. Shares of giants such as Saudi Basic Industries Corporation (Sabic) and Emaar Economic City were down.
UAE investors are also fearing further falls in stock prices, after the UAE stock markets lost some US $2 billion in a single week last month. “Since last Sunday the markets have been declining every day and we cannot expect this trend to change before next week,” said Ahmad Abdul Rahman, an analyst with Amanah Capital, speaking at the end of October. “By then, we will hopefully see a different picture.”
The Dubai and the Abu Dhabi markets also fell considerably in the week ending November 2. Dubai Financial Market touched 395 before recovering to close at 402.95. Abu Dhabi closed at 3,288.85, its lowest level in four months.
Market capitalisations fell AED 14.4 billion in Abu Dhabi and AED 12.9 billion in Dubai during the week.
Emaar lost around US $490 million in market capitalisation, which drove the entire market down. “When Emaar looses, the market follows and all shares decline,” Rahman said.
“This is the nature of the local market — investors act too speculatively and are in there for quick profits. They do not place their investments according to companies’ results, but due to short time market highs or lows.”
“Especially in Dubai, investors are too short sighted and indefinite. The Abu Dhabi market moves more slowly and steadily, but is not comparable to Dubai in terms of volume,” he added.
Telecom firms were among the top losers. Newcomer du had more than US $190 million pared from its market value and Etisalat fell after the firm’s announcement that it expects a loss of 20% of the local telecom market to rival du.
“Investors might have reacted to the absence of the IPO’s over-subscription profits from du’s financial statements. But although du is not performing strongly at the moment it will be a hot tip for next year,” Rahman said.
Some shares were less affected by the decline than others. Arabtech, Abu Dhabi Islamic Bank and Dubai Islamic Bank had recorded only minor losses at press time.
Many investors have now shifted to the Kuwaiti and the Egyptian market — the only Middle Eastern bourses that have recorded profits recently. “The Egyptian government announced plans to sell the Bank of Alexandria to the Brazilian Sao Paulo Group for US $2 billion, which boasted the market immensely and prompted many shareholders to shift to Egypt. The Kuwait market has also performed well,” said Rahman.
At a special seminar in Riyadh, Abdullah ibn Safran, a technical stock market analyst and portfolio manager, predicted that the worst isn’t over yet. Based on the Elliot Wave Theory, which is used for technical analysis of stock markets, he said Saudi Arabia would begin to recover after falling to 8,300 points.
He optimistically predicted that the market would eventually peak above the previous record figure of nearly 21,000 points. “The theory defines the identity of each correctional movement of the index based on the psychology and attitude of dealers,” he said.
Muhammad Al-Qahtani, a Saudi economist, advised small investors to register their protest by not putting their money in the stock market until stability returns. According to Arab News, he said: “By stopping their dealings with the market, they can show their dissatisfaction with the market situation and send a message to market makers that the situation has become frightening.”
A new IMF report outlining the region’s economic strength suggests that the markets may also be suffering from irrational exuberance. Mohsin Khan, director of the IMF’s Middle East and Central Asia Department, said: “Growth in the region continues to outpace global growth and should average 6–7% in 2006 and 2007.”
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