Saudi stocks slump 5.5%, first to collapse and first to rebound?
Posted on 07 August 2011 with 3 comments from readers
Because the Saudia Arabian bourse is the only major bourse in the world open on a Saturday it was also the first to respond to the S&P downgrade of US debt to below triple-A for the first time in history.
The Tadawul All-Shares Index closed down 350.43 points 6,073.44 or 5.5 per cent lower. Other Gulf stock markets opening for business this morning are likely to show similar crashes.
Oil price falls
There has been a big fall in oil prices over the past few sessions that is also spooking Gulf bourses in the normally extremely quiet period of the hot summer and the Holy Month of Ramadan.
However, ArabianMoney can see every reason to believe that Gulf stock markets will be among the first in the world to rebound from the current sell-off. That makes them an excellent buy when things look worst for global markets as editor and publisher Peter Cooper told the Agora Financial conference in Vancouver last month.
The reason is simply that the supply constraints of Peak Oil and the Arab Spring have not gone away. This means that oil prices are going to stay relatively high even if the world economy gets into a real funk again, so oil nations will have the cash flow when others are still struggling.
That means that Gulf stock markets will just become an even better buy when they finally bottom out in this crisis. All the same ArabianMoney can only acknowledge that you do not try to catch a falling knife and that standing back until a fall is over is only commonsense.
Volatility rules
Indeed, we can see emerging markets now facing a particularly strong rout in prices. There is always a tendency in these markets for higher volatility than in the developed countries and higher volatility to the downside is what we face now.
When could this come to an end? A few days ago we suggested October as the traditional month for stock markets to hit bottom. But we are clearly going to see some big falls this week followed by technical rallies.
That said multi-month falls to a true bottom are the historic precedent for stock markets and it should be no different this time.
3 Comments posted by readers:
Contrary to your analysis, the Saudi market selloff was most likely driven by the panic on Wednesday & Thrusday and not by S&P’s decision.
The downgrade is in fact a non-event to Wall Street as it will not affect their capital requirements in any possible way as stated by the FED.
If anything, the market is more likely to end on a slightly high note on Monday’s close and yields will continue to compress for the forseeable future.
Ed Note: So you’re saying an S&P rating does not affect the value of all those T-bonds?
Well, the commentators I’ve been reading agree with the Editor that Monday will be a downturn and a severe one.
Why? Because investors have lost confidence in the shares of unproductive industry, which is failing to sell to populations who are paying off debts or simply running out of money to make purchases.
If there was a 10% downturn or so on Friday, who would bet that there will be an upturn on Monday? However, it will soon be revealed to us for Monday is approaching rapidly.
Why was there a panic on Wednesday and Thursday, in the Saudi market and everywhere else, if it was not because of the rumour that S&P would downgrade on Friday? What OTHER possible reason for a widespread, global and deep fall in share prices was there out there? None, surely!
If the FED says that the downturn will not affect Wall Street’s capital requirements, then, I, for one, will seriously believe that it WILL affect Wall Street’s capital requirements. For we are into the lies and the half-truths in order to keep the Titanic afloat and, in these circumstances, anything is justified in the eyes of some authorities.
Dubai’s market is not any better. While all the talk is about the US Dubais Index is down almost 4%.