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Saudi Stock Market: Small Investors fall victim to Market Fluctuations | ASHARQ AL-AWSAT English Archive 2005 -2017
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Jeddah, Asharq Al-Awsat- Saudi stock market analysts believe that the current fluctuations in the Saudi market are normal. The market is turbulent and whenever it suffers a setback, a number of small investors suffer losses and decide to leave the market. Inside the trading rooms, you see investors panicking because of the losses that they incur. Despite this, the market reflects active economic movement featuring major investments by capitalists and a large number of investors.

Muhammad Naif al-Shatter, a stock market investor, says that he started investing a few months ago with the money he acquired from a bank. He adds &#34I entered the stock market without knowing anything about it. I thought that I could outdo the real estate market. Perhaps this would have been possible had I had enough experience, but I lost last month when the price of shares crashed. After that I realized how major investors steer the market to make gains at the expense of investors with no experience in the market. I realized that the market could kick small investors out.&#34

The stock market has attracted many investors who are fascinated by the market. However, the market includes investors with big portfolios that are highly experienced about stock trading. These investors stick together and use their familiarity with the market to make gains at the expense of dealers who do not know much about the stock market.

Safer al-Qahtani, an economic analyst, explains that the Saudi stock market is an open market in which customers can buy and sell any stock. The systems he added, does not block the freedom of buying and selling, but unfortunately some of the trading activities might involve fraud and deception of new investors. This, he adds, requires the need to end these flaws.

Al-Qahtani adds, &#34The market has been suffering from setbacks resulting from corrections since the beginning of the year, particularly for companies whose profits have doubled unjustifiably. These corrections, he adds, could be healthy as they may result in a profit, which is what is expected these days as the market comes close to making gains in the second quarter of the year.&#34

These corrections are normal in all world markets, but a close look at the stock market and the daily trading activities indicates that the prices of some stock are doubling repeatedly and unjustifiably. This increases the losses by speculators every now and then.

Two groups of investors run the market. The first includes experts in trading and the second consists of investors with no experience in the market. The latter investors lose quickly. Ayshah Harrazi, a schoolteacher, says, &#34I invested 560,000 Saudi riyals, which is my life-savings and I lost it in last year”s trading when the market lost 7.7 billion Saudi riyals.&#34 A large part of her money came through a saving plan that she had organized with a group of colleagues.

Dhakir al-Shahri, who lost a huge amount of money that he did not wish to disclose, says that he saw the stock price crashing before his eyes last month but could not sell because time went by and trading was closed. He notes that he is still in the market and that he and other investors expect similar shakes at anytime at the hands of market speculators.

Al-Qahtani adds, &#34There are only two solutions for these small investors, who are mostly civil servants and retirees. Either they stay away from speculative firms with modest prices and instead invest in companies with strong assets that have bearing on the stock index or they continue to trade in the inexpensive stocks. However, if they do so they must not sell when targeted by the market speculators, thus denying the latter the chance to gain and at the same time giving themselves a breathing space to know what is going on around them and learn with the least possible losses.&#34

Some investors lose because they do not understand how the trading works or because they are unaware of decisions made by the Stock Market Authority, which normally benefit the market. Add to this their non-familiarity with the corporate announcements and the fact that some of them fall victim to market experts. Others listen to rumors designed by market makers and when the correction takes place, they hasten to conclude that it is an unhealthy sign. The lack of transparency and correct information has made the market susceptible to such setbacks, and here lies the important role of the Saudi Stock Market Authority to put an end to such rumors or incorrect information by making the necessary clarifications available. This also requires adequate transparency to achieve the aspired goals, which include ending rumors and making available to any investor or trader complete information on the market. The traded stocks represent 40 percent of the overall capital of the stock market. The government continues to retain 46 percent of the stocks. In the meantime, the Saudi stock market remains liable to market setbacks, which lead to losses by many investors. However, the indictors point to an improvement in the market performance, which is attracting more investors. The market, which currently includes 78 companies, is expected to see public offerings by more companies in the coming months.

Concluding, Al-Qahtani notes that in light of the current conditions, the oil price, and the banking and economic rates there are few concerns about a retreat in the market, unless we see a change in the indicators, an acute drop in the oil price, and a sharp rise in the interest rates that could worry investors. For instance, eight million people have subscribed to the Al-Bilad Bank public offering. Other companies will continue to make public offering, which means that millions of stocks will join the market. This will lead to a balance in the stock market, particularly if parts of the government-held stocks are offered. The stock market performance is improving, as was evident last year, when the dividend for shareholders in some banks and companies was good. The British Bank and the Saudi-American Bank distributed free stock. This is because if the dividend reaches 30-35 percent the company could raise its capital within five years and under the law it is obliged to distribute the dividend if the reserves reach 50 percent.