Mohamed H. Zakaria, Jeddah, published 16 March 2006

Saudi Stock Market

This is in reference to news and articles published daily on Saudi and other regional stock markets. The core problem remains the lack of investment opportunities in the region; so the investors look at the stock market and real estate as the only way to make quick returns on investments.

One only has to look at the history of Japanese stock market to see what the future will bring to our stock markets. Nikkei started its nonstop upward journey in May 1884 at 9,940 points and only stopped at 38,916 points in December 1989 and then crashed to its 1884 level of 9,878 points and didn’t stop there and tested further lows at 7,837 points in April 2003. The index has since recovered and is trading above 16,000 points after dwindling for two decades sending the Japanese economy into recession for more than two decades despite the fact that the Japanese had $4 trillion in net savings independent of stock “wealth” to fall back on after their market crashed.

Another example is of NASDAQ. Way back near the top in March 2000 the NASDAQ composite index commanded an enormous market-capitalization of $6.24 trillion across 4,785 companies. By December 2001 this had plummeted dramatically to $2,817 billion comprised of 4,052 companies. Long-suffering NASDAQ investors had lost an astounding $3.42 trillion or 55 percent of their total NASDAQ wealth by the end of 2001!

Will the Saudi stock index reach 20,000 and 50,000 some day? May be yes, but not in five or even ten years as some suggest. It certainly won’t get there in a straight line. The Nikkei was at 39,000 16 years ago and is still unable to maintain over 15,000. Similarly, our indexes will fall significantly before necessary structural changes occur in the economy that permit the stock market to resume steady increases that reflect real economic growth.