cyborg81
June 29th, 2007, 08:17 AM
"They don't know what they're doing. They don't do any homework. They don't do proper research. They just go in and out when they feel like. It's just not sophisticated." Okay, so who said these words and what was he talking about?
The obvious guess is a Dubai traffic police officer describing the standard of driving in the United Arab Emirates. Sadly not.
The unfortunate truth is it's something far worse and more significant - Saudi Arabia's HRH Prince Alwaleed describing what kind of people invest in the Saudi stock market.
Story continues below ↓
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He has an excellent point. Whereas in the West, around 95% of stock market investors are big financial institutions, the figure is exactly the opposite in Saudi Arabia, where almost everyone trading is a private dealer, going in blind, with relatively small amounts, hoping to make fast cash.
The effects are clear for all to see. Last year Saudi Arabia's stock market dived 60%.
Sure, most markets in the GCC took a pounding, but look at the figures so far this year: The UAE markets are up 15%. Bahrain is up 6%.
Kuwait is up 34%. Oman is up 10%. Jordan is up 3%. In fact, everywhere you look the numbers are rising - except for Saudi Arabia, which in the first six months of this year has delivered an appalling 10% drop.
So why is Saudi Arabia still the exception to the rule? The economy isn't exactly that bad, with a GDP of over US$300bn and growth rates approaching 7% a year.
Add to that the fact 75% come from oil and the privatisation of telecommunication and electricity companies has been a success, you would think this would be the place to invest.
It is - but as Prince Alwaleed says, not always the right type of investor. With no direct access to the market, the big foreign institutions such as Merrill Lynch and Deutsche Bank have their hands well and truly tied.
Instead they are focusing on Dubai, Bahrain and Qatar, while Saudi Arabia is left in the hands of hundreds of thousands of short-term investors, not really caring what or who they invest in.
It means the entire market is unsophisticated and largely dependent on the daily moods of traders with US$5000 to spend on that day.
Price earnings ratios, dividend growth, asset base, cash flow and sales revenues are meaningless - they do not in any way affect the share performance of a given company.
The good news is that this is all going to soon change.
Under the terms of the World Trade Organisation (WTO) agreement in 2005, within two years the big foreign players are likely to take big positions in Saudi Arabian companies.
In anticipation of this, Morgan Stanley, Merrill Lynch, BNP Paribas and Deutsche Bank have already taken up licences for investment banking. These big guns know that the Saudi stock market presents the biggest potential of all the Gulf countires, and by 2009, and that they could be a serious part of the action.
But of course, 2009 is a long way away, especially in terms of the stock markets in the Gulf region. So what is going to happen before then? A lot could happen that's for sure.
Looking at the rises across the GCC, it seems the race to outdo the Kingdom of Saudi Arabia before then has already begun.
I predict markets in the UAE, Bahrain, Qatar and Kuwait are all heading for a 30% rise in the next year, as more sophisticated investors take up large positions and claim a piece of the pie they have so longed for.
As for the smaller investors, you are better off leaving your cash tied up for now and enjoying the ride.
http://www.arabianbusiness.com/index.php?option=com_content&view=article&id=495006
The obvious guess is a Dubai traffic police officer describing the standard of driving in the United Arab Emirates. Sadly not.
The unfortunate truth is it's something far worse and more significant - Saudi Arabia's HRH Prince Alwaleed describing what kind of people invest in the Saudi stock market.
Story continues below ↓
advertisement
He has an excellent point. Whereas in the West, around 95% of stock market investors are big financial institutions, the figure is exactly the opposite in Saudi Arabia, where almost everyone trading is a private dealer, going in blind, with relatively small amounts, hoping to make fast cash.
The effects are clear for all to see. Last year Saudi Arabia's stock market dived 60%.
Sure, most markets in the GCC took a pounding, but look at the figures so far this year: The UAE markets are up 15%. Bahrain is up 6%.
Kuwait is up 34%. Oman is up 10%. Jordan is up 3%. In fact, everywhere you look the numbers are rising - except for Saudi Arabia, which in the first six months of this year has delivered an appalling 10% drop.
So why is Saudi Arabia still the exception to the rule? The economy isn't exactly that bad, with a GDP of over US$300bn and growth rates approaching 7% a year.
Add to that the fact 75% come from oil and the privatisation of telecommunication and electricity companies has been a success, you would think this would be the place to invest.
It is - but as Prince Alwaleed says, not always the right type of investor. With no direct access to the market, the big foreign institutions such as Merrill Lynch and Deutsche Bank have their hands well and truly tied.
Instead they are focusing on Dubai, Bahrain and Qatar, while Saudi Arabia is left in the hands of hundreds of thousands of short-term investors, not really caring what or who they invest in.
It means the entire market is unsophisticated and largely dependent on the daily moods of traders with US$5000 to spend on that day.
Price earnings ratios, dividend growth, asset base, cash flow and sales revenues are meaningless - they do not in any way affect the share performance of a given company.
The good news is that this is all going to soon change.
Under the terms of the World Trade Organisation (WTO) agreement in 2005, within two years the big foreign players are likely to take big positions in Saudi Arabian companies.
In anticipation of this, Morgan Stanley, Merrill Lynch, BNP Paribas and Deutsche Bank have already taken up licences for investment banking. These big guns know that the Saudi stock market presents the biggest potential of all the Gulf countires, and by 2009, and that they could be a serious part of the action.
But of course, 2009 is a long way away, especially in terms of the stock markets in the Gulf region. So what is going to happen before then? A lot could happen that's for sure.
Looking at the rises across the GCC, it seems the race to outdo the Kingdom of Saudi Arabia before then has already begun.
I predict markets in the UAE, Bahrain, Qatar and Kuwait are all heading for a 30% rise in the next year, as more sophisticated investors take up large positions and claim a piece of the pie they have so longed for.
As for the smaller investors, you are better off leaving your cash tied up for now and enjoying the ride.
http://www.arabianbusiness.com/index.php?option=com_content&view=article&id=495006