MARKET IN FOCUS: Panic selling hits Tadawul exchange

The Tadawul All-Share Index (TASI) took a dive at lunchtime on 26 March, shedding more than 520 points and wiping more than SR 80,000 million ($21,335 million) off the value of listed shares. The index closed at 8,098 points

following the panic selling, its second largest drop since February 2006, which marked the start of the ongoing correction.

Market capitalisation stood at $324,971 million on 28 March, less than half its peak value 13 months ago. The TASI had been making gains in the previous two weeks. All stocks dropped, except shares in Arriyadh Development Company.

'It was another speculative attack on the market,' says Khan Zahid, chief economist at Riyad Bank. 'The drop was probably initiated by a big sale that created a panic. As we have been saying week in and week out, there is too much

speculative trading. At some point, the market is going to crash again.'

Despite average price/earnings ratios of 14-15 that make blue chip stocks such as Saudi Basic Industries Corporation (Sabic) and banking sector shares attractive buys, the bulk of trading on the market continues to be in smaller stocks in the agricultural and service sectors. Investors are also targeting greenfield companies, such as Emaar the Economic City, that have staged initial public offerings (IPOs) but have yet to post any profits.

'The market had gone up 16 per cent in February and profit booking resulted in a strong correction,' says Faisal Hasan, senior financial analyst at Global Investment House.

The threat of a further drop has not deterred large investors, who dominate trading on the bourse and are used to riding large intra-day peaks and troughs. Continuing volatility means volumes remain healthy. On 28 March, 333 million shares changed hands, with turnover of SR 16,058 million ($4,282 million).

A pipeline of upcoming IPOs has also been blamed for the drop. The IPOs of five insurance companies began on 17 March. Shares were sold at a nominal value of SR10 ($2.70) targeting a total of SR 266 million ($71 million). 'The IPOs are required. We need more investment

opportunities and companies listed. The primary market response is good,' says Hasan.

However, the gap between the opening of IPO subscriptions and the immediate return of

investors on 27 March to the secondary market the day after the fall suggests traders were not selling shares to raise capital to invest in new issues.

'Smaller investors go for IPOs and don't care about the exchange, while larger investors play the stock market,' says Zahid.

'The government is not interested any more in the stock market as the smaller investors are not there. They have to punish and fine speculators.'