Saudi stocks crash into bear market on protest fears
Posted on 02 March 2011 with 2 comments from readers
Saudi stocks officially entered bear market territory with investors running for cash in advance of two rumored days of protest on March 11th and 20th, despite a surge in oil prices back to $100 a barrel.
Brokers said investors were fearful about what might happen and going into cash for safety. The main Tadawul index is more than 20 per cent off its 2010 high and thus in bear market territory.
Any yet as the ArabianMoney March newsletter pointed out today (click here) this bear market crash might soon be viewed as a contrarian investment opportunity, particularly in countries like the United Arab Emirates which has been free of protests so far.
New normal
Normally high oil prices are bullish for the Oil States. They stand to gain valuable oil revenues while the rest of the world effectively pays them an oil tax.
It is different this time because it is unrest in the oil countries that is causing the high oil price. As the civil war in Libya shows in this situation all semblance of coherent government can vanish into violence that makes it impossible for irreplaceable expatriate oil workers to stay.
Western stock markets still seem to be underpricing this risk. Perhaps the Saudi Tadawul today is a sign of days to come for the developed world’s financial markets.
Indeed, if these Saudi days of protest actually happen or turn nasty this will be the very black swan that bearish observers have been expecting to land, with stock market valuations already very stretched on many criteria.
2 Comments posted by readers:
Any significant violence in Saudi Arabia and the oil price will REALLY spike. It could set a record up, unless there is some limit to how much it can rise, which I don’t think there is. Should major Saudi violence occur (which I don’t expect) my guess is that the Dow will drop between 200 to 300 points during that Friday. It will be a rumor run trading day which could get ugly with electronic trading programs. Anything is possible now.
Everyone on TV is saying buy silver.
Nokia is to build a major manufacturing plant, not in China, but near Hanoi. One day it might be in China.
Saudi had two very bloody days within 1 week with losses of almost 6% one day and almost 7% on another day. That’s pretty bad for a country flush with cash from oil. They are easily able to support their local markets if needed but obviously not supporting them must mean something. I smell trouble…