Saudi Investors Learn Ups and Downs of Stock Market

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With the price of oil over $60 a barrel, citizens of oil rich countries like Saudi Arabia are awash in petrol dollars and for many people a favorite place to put that money has been the exploding Saudi stock market. With rates of return last year that dwarfed those of European and American markets, the Saudi boom has generated millions of dollars in paper profits.

NPR's Peter Kenyon reports, though, that Saudi's new investors are making a discovery. What goes up can also come down.

PETER KENYON reporting:

Earlier this month, the Jeddah-based Arab News ran a brief item under the headline, The Stock Market is Bad for your Health. The article said the previous week's ten percent drop in the Tadawul (ph), the Saudi stock market, led to at least four fatal heart attacks and one shooting. According to media accounts, the shooting involved two friends, one who invested his money on the advice of the other and who wasn't pleased with the results.

At a time when Saudi oil installations are under attack by terrorists, the Iraqi conflict is raging and religious clerics are in an uproar about moves to open up the conservative society, it seems that all Saudis can talk about is the stock market. Many, like Jeddah shop owner Mamdu Ohafi (ph), see the market as an opaque money making machine that seems to work mainly for the biggest and best connected investors.

Mr. MAMDU OHAFI (Shop owner): It's booming here in Saudi Arabia, and it's gotten no low, no regulations, no clear regulations. So lots of people, they manipulate the rules and they made lots of money over there.

KENYON: From a distance, the results have been staggering. Arab markets last year reported earnings growth in the 45 percent range, compared with 15 percent in the markets of developed countries. But in recent weeks, the market has plunged, in the process wiping out much of the gains, and in some cases, the savings of small investors who had no experience in the risks involved in equity speculation.

Business writer and analyst Omar Bagur (ph) says analysts have been warning for months that the Saudi market was due for a correction, but many people paid no attention.

Mr. OMAR BAGUR (Business Writer and Analyst): People have been used to good times for such a long time that it's hard to believe the doomsayers. It was quite obvious the rapidity and increasing values was on an expanding path, almost exponential beyond the point of actual resources' ability to sustain that kind of growth.

KENYON: Bagur and others say one cause of the market's volatility is the very abundance of cash that prompted many Saudis to take the plunge. The answer, many say, is to privatize more state-run companies. Businessman, Yasin Alareiza (ph) says besides helping to soak up excess liquidity in the market, privatization will provide a jolt of free market efficiency that Saudi consumers will find refreshing.

For example, he says until the state run phone company was privatized a few years ago, it would routinely take five to six months to get phone lines installed. In low-density areas, customers would sometimes be asked to dig up their own streets and pay to have cable laid in. Alareiza says investors not only made money when they bought shares in the newly privatized phone company, they got better service.

Mr. YASIN ALAREIZA (Businessman): It floated shares in the stock market, which were allegedly very successful. And then the service improved tremendously after the privatization. Still, there are a lot of things to be improved further, but compared to what it was before, it's a world of difference.

KENYON: Future privatization moves may include Saudi Arabian airlines and the water desalination utility that also provides electricity. But for now, many small Saudi investors are yanking what's left of their money out of the market and hoping things will settle down soon.

Peter Kenyon, NPR News.

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