Mohamed H. Zakaria • Jeddah, published 23 December 2004

Market Capitalization

This refers to the report “Saudi Stock Market Capitalization Crosses SR1 Trillion in November” by Said Al-Shaikh (Dec. 16). The total market capitalization of the developed world’s main bourses such as NYSE, FTSE, DAX, CAC and Nikkei’s has rarely exceeded their national GDPs. The highly speculative Saudi Stock market has exceeded the GDP. The market, which from this point on may add little gains, is overdue for major corrections. The PE ratio of 25.5 multiple is much higher than that of S&P 500, which has an overall PE ratio of 15 multiple. Lets hope that SAMA is monitoring the situation very closely and has contingency plans for a soft landing to avoid a crash or hard landing. Other countries in the region are taking those very steps. Kuwait, for example, has raised interest rate five times this year, adjusting the margin between the interest rates on the dinar and other major currencies especially the US Dollar, providing an opportunity to investors to shift from stocks to fixed deposits gradually without causing a stampede.