The Religious Policeman

....must come down. And that's usually the case with share prices that outrun their true value. Most countries with mature stock markets have already learnt that lesson. Our stock market is immature, and we're only just beginning.

Back on the 25th of February, it was all good news

Saudi Stock Index Gains 1,193.52 Points in a Week

The Saudi stock market continued to attract the limelight last week with investors reportedly withdrawing from other Gulf markets and turning to the Saudi stock exchange.
The Tadawul All-Share Index (TASI) climbed 6.1 percent on Thursday

It had been going like that for a while. By international standards, it's not a big market, and there are relatively few institutional investors with pension funds or mutual funds. (Most pension funds are government-held and -invested.) So it's a smallish market with lots of private investors without too much experience, and no good financial press or network of advisors. Add to this, a few recently-privatized companies that looked like a "good buy", and there you have a volatile market with problems on the horizon. The index kept going up, so people bought , told their friends who in turn bought more themselves, so lo and behold the prices kept rising, then when they ran out of cash they borrowed to buy even more shares, so the price still kept going up, and with this frothy brew bubbling away still, some people sold up all their assets and bought even more.

But then on February 27th the market finally ran out of buyers, and the buyers ran out of money, and gravity inevitably took over....

Stocks Dive for Second Day

After a period of unjustified rise in stock prices, the Saudi stock market continued its plunge yesterday. The Tadawul All-Share Index (TASI) lost a massive 1,894 points in two days after hitting a record high of 20,634.86 on Saturday. Yesterday, the index closed at 18,740.20, down 914.48 points or 4.65 percent.

....and we started to hear some very sad stories....

The recent and sudden downturn in the Saudi stock market left a groom over SR35,000 poorer, the daily Okaz reported. The groom thought it would be a good idea to put SR50,000 (approx $ 13,500) of his money intended to cover his upcoming wedding expenses into the stock market. His decision couldn’t have come at a worse time, as the market took a dip following a bullish run. By the time he pulled his investment out, he had less than SR15,000 of his principal funds. The man was taken to a hospital after the loss left him speechless — literally speechless. The wedding was called off due the groom’s inability to cover the ceremony’s expense, not to mention his inability to articulate.

A Saudi father never suspected that he would lose more than half of his daughter’s dowry money in less than two days, Al-Madinah daily reported. He wanted to invest his daughter’s dowry money in the stock market and double his profit. Instead with the market crashing last week, he lost more than half of the SR50,000 stake. Having learned a hard lesson, he sold one of his cars to make up for the loss and continued his daughter’s wedding.

....with the fall taking over people's working lives....

Employees with Internet connections are constantly in front of screens even if they are in the middle of a meeting or a conference. If you find a person attending a meeting with his attention focused on his cell phone, chances are he’s linked up to his stock portfolio. You can read it in his face, sometimes contorted with gloom and confusion.

....and on occasion, tragic results....

Last week’s 10.36% drop in the Saudi Stock Market (Tadawul) resulted in at least four fatal heart attacks and one shooting, the daily Al-Riyadh reported. The shooting incident was a result of a dispute between two friends, one who invested his money at the advice of the other. Two bullets later, the victim was dead and the perpetrator was in custody.

Now one reason that I'm commenting on all of this calmly and dispassionately, is that I'm not suffering personally. I do have some modest investments, but I’ve had them for a few years, and over that time they’ve grown in line with the Saudi economy, so I have no real complaints. I suppose that in the last few days I have “lost” some money, but it’s electronic money I never really had in the first place, it’s been like the froth on the top of a cup of latte, blown off by the wind.

It’s a tough learning experience for some of my fellow-countrymen, but I hope they start to wise up to four things:

1. Stock market investment, like a career, is all about slogging away in the long term. The “quick killing” is an illusory gamble.

2. Never invest money you don’t have, like someone else’s money you borrowed.

3. Buying into a rapidly rising market, anywhere in the world, is a mug’s game.

And the fourth? Well, that’s one that our Shoura Council need to learn.

Shoura Members Want Govt to Halt Stock Crash
Saudi stocks plunged to new lows yesterday, sending shockwaves among investors as Shoura Council members urged intervention by the Finance Ministry and the governor of the Saudi Arabian Monetary Agency (SAMA) to prevent a market crash…..“Such a move is essential to allay fears of the public over the unjustifiable stock market crash,”

The lesson for them is that stock markets follow the cruel rules of the free market, so there’s no such thing as an “unjustifiable stock market crash”, just naive optimism smashing into brutal reality. Welcome to the real world, fellas, the one where ordinary people live, where you don’t just turn up the oil tap to compensate for your financial mistakes. And the other half of this lesson is that when we are three years old and fall over on the sidewalk, our Mummy or Daddy will pick us up and make it better; but when we are grown-ups we shouldn’t expect our government to be our new Mummy and Daddy and make it better the same way.

OK, lecture over. I’ll just end with something from a syndicated press release supplied by a journalist reader. There are all sorts of medical reports of stock-market-induced maladies being published. And in this case, whilst “what goes up, must come down”, the converse is not necessarily true.

From sexual problems to heart attacks, Saudi society is feeling the pinch of a sharp drop in the stock market index after it recorded spectacular gains. "My husband has become depressed since losing half a million riyals (133,000 dollars) in the borse and cannot perform his marital duties toward me," said a Saudi woman who identified herself as "Um Rashed."

What goes down, may not always come up.