Discussion in 'Financial Cents' started by melbo, May 23, 2006.
Russia, India, Saudi Arabia, Sweden...
When will this affect us?
oops. wrong picture
:dunno: subscribing to learn more about the situation
Saudi stock market crash a cause for concern
The ruin of hundreds of thousands of small shareholders in the Saudi stock market crash is a worrying development. It is financial catastrophe for those involved, and is already impacting on consumer spending. But the authorities now need to tread carefully to minimize the total economic effect of the crash.
Stock market crashes do not come much more vicious than the collapse that has engulfed the Saudi bourse in the past three months. It has collapsed by 50% after briefly reaching an all-time high of over 20,000 points in February.
The pain for investors is therefore particularly acute as there was little warning and little time to liquidate stocks before share prices disappeared under water. Not surprisingly almost any meeting in Jeddah or Riyadh these days turns into a discussion of the market, and individual tales of ruin are numerous.
Indeed, with some four million plus shareholders almost every family in the Kingdom is touched by the tragedy. And the leverage made available by the banks is widely blamed for the extent of the market's decline.
It was, for example, not uncommon for an investor swept up in the market euphoria to sell all his assets, including his home, car and to borrow from his wife and friends, and then obtain a loan for the same amount from his bank with the collateral as security. Thus a 50% market decline wiped out these assets entirely once the loan was called in.
Financial ruin is not something investors thought remotely possible with the Kingdom enjoying high oil prices and a budget surplus. Yet such episodes of speculation and collapse are nothing new to investment history, and tend to happen when sudden wealth appears and falls into the hands of the financially ignorant.
As the British playwright George Bernard Shaw once wrote: 'The surest way to ruin a man who doesn't know how to handle money is to give him some'.
The even worse news is that the Saudi stock market's valuation level is still on the high side. The price-to-earnings ratio has fallen from 45 to 25 but this is still very high. So too is the ratio of GDP to market capitalization at 200% compared with less than 75% for emerging markets as an asset class.
There is also a problem with the earnings side of the p/e ratio as many companies have been booking their stock market profits as annual earnings. Now they will be booking losses, while for the banks in particular the lucrative days of big initial public offerings and brokerage profits look over for the time being.
Stock markets always find their own level but are inclined to over react on the upside and on the downside. Thus it could be a long hot summer for some investors but for non-leveraged investors hanging on is usually a better remedy than panic selling.
Stock market crash sparks Saudis' fury
JEDDAH: Hundreds of Saudis turned a forum into a rare public debate of the role of the authorities and banks in a bourse crash, which has hit hundreds of thousands of small investors.
The privately organised forum in Jeddah offered a rare opportunity for a public outpouring of grief and anger after the crash, which wiped off half of the value of the Arab world's largest bourse in 60 trading days.
"I'm getting a lot of (written) questions from the public asking 'where has our money gone?'" moderator Abdullah Dahlan told the meeting.
More than 1,000 investors packed the auditorium hours before its start, a trickle compared to the estimated four million Saudis who trade in stocks and who suffered most from the crash.
The downturn which began in late February was sparked by a power struggle between the bourse regulator and cash-laden major speculators, with retail investors - most of whom lack basic knowledge of market principles - caught in the middle.
Analysts say the market had been ripe for a correction after it soared over 600 per cent in three years on the back of record oil receipts, abundant liquidity and lack of quality paper.
"Our market has been manipulated," Yassine Al Jafri, a prominent economist, said, triggering noisy applause and cheers.
"There are questions that beg to be asked: Why has state spending slowed? Why the weak supply of shares when you see demand growing," he said.
The slump has dealt a blow to the government's drive to ensure a fairer sharing of wealth through investment in stocks.
Participants asked why the state had not floated oil giant Aramco and why it kept stakes of 70pc in top listed firms.
"In other countries, the state and financial institutions join efforts in times of crises. Why didn't banks give small investors a six-month reprieve on their debts? They can afford to do it, they make billions of riyals in profits," said Dahlan.
"Another question was 'where is Prince Alwaleed (bin Talal) amid all of this?'" he added.
The announcement by the billionaire prince, a well known international investor, of plans to invest up to 10 billion riyals ($2.7bn) in Saudi shares helped spark a sharp but short-lived rebound.
"I think he got into the market earlier (before the announcement)," said Rashed Al Fouzan, an analyst.
Officials of the bourse regulator, the Capital Markets Authority, declined invitations to attend the meeting, said Faisal Alsayrafi, the event's chief organiser.
The Saudi bourse has been trying to find its way to recovery since the dismissal last week of the CMA's chief.
Mohammed Al Hamed, a psychologist, said the impact of the crash on the morale of investors may take years to subside.
Kuwait and Dubai
Investors bewildered by GCC stock market crash
Stock markets around the Gulf region plunged downwards this week, led by Saudi Arabia and Dubai. There are calls for government intervention to stop the market falling further. But in reality this is just the latest example of irrational exuberance by stock market investors.
Saudi Arabia: Tuesday, March 14 - 2006
Like a general adding up the body bags on a battlefield, the reports from GCC stock markets in mid-week made for grim analysis. Investors are now nursing serious losses from the worst crashes in local stock markets since the late 1990s when the oil price stood at $10-a-barrel.
The Dubai Financial Market is most badly hit, and is now 45% off its all time high of last summer; and Abu Dhabi has followed with a 33% slump in share prices. Doha has taken a similar downward path with shares down a more modest 20%.
But until the past couple of weeks the two biggest GCC stock markets in Saudi Arabia and Kuwait were unaffected. Thus the impact of a 27% fall in the Kingdom and 14% in Kuwait has been all the more unexpected, leading to calls for government intervention to prevent a further downturn, and to correct shares to 'more normal' levels.
Beyond 'fair value'
However, this misses the point. Share prices have been driven upwards way beyond their 'fair value'. The Saudi Arabian bourse has been trading on a market price-to-earnings ratio of 40 compared with a 'fair value' of say 15 for an emerging market with a good economic outlook.
As the Japanese bank Nomura commented last summer this level of valuation is unsustainable in any marketplace, and always leads to a correction. Nomura was a little early in its warning but accurate in its analysis and conclusion.
Will the GCC stock markets therefore continue their decline? Unless somebody steps in to stop this, what is to stop investors panicking and selling out? Clearly the Kuwaiti and Saudi investors who demanded government action have a good case, but governments only usually intervene when markets have blown-off their excesses.
What governments could usefully do now is to stop new initial public offerings which are draining liquidity from the markets. An emergency ban to all IPOs would have some effect. Letting IPOs go ahead will definitely accelerate the decline of share prices - as investors sell in the market to buy the IPOs - and could lead to a market meltdown.
Confidence wiped out
The danger is that market corrections or crashes can wipe out investor confidence for years. The 1998-99 crash kept share prices undervalued for several years as investors had got their fingers badly burned, particularly those investing borrowed money.
It remains to be seen what the wider implications are for the general economy of the GCC, and a slowdown in new projects would seem the most likely impact, although the huge flow of oil revenues will offset any immediate effect on economic growth.
But clearly times will be tougher for anyone involved in supplying goods and services to those retail investors who have lost money in the marketplace, and some of those individuals will face personal ruin as the result of trading with borrowed and lost capital.
© 1996-2006 by AME Info FZ LLC. All rights reserved.
This story was posted by staff reporter Tuesday, March 14 - 2006 at 09:44 UAE local time (GMT+4)
Print Date: Tuesday, May 23 - 2006 - 21:54:00 GMT+4
Market is rebounding.... commodities are up... actually everything is in the green over at Kitco... except the NIkkei.... at this time...
Funny how the articles are all saying investors are back... euphoria before the 3 day weekend..... good time to buy and all....
Fickle bunch.... those analysts and "experts" are.....
Big powerful moves by big powerful institutions to "move" things around to their benefit and timing....
Although, whiplash is a funny thing.... after people get jerked around too much.... the smart ones get off the ride and stay on "terra firma".... those whose brains are already dislodged and manipulated from too many "hits"..... aren't smart enough, stay addicted to the "thrill" and stay on the ride.... Lots of small investor wealth probably got wiped out in the last couple days.... oh well.... "Natural Selection".......
I would guess the more folks who "line up".... miss your the not so subtle message sent with the pics of dominos...... I guess that's just "Natural Selection" as well.....
Are we next?..... Doesn't look like it.... today.... er... this morning..... um.... I mean.... at this moment....
Can't find a good link. This off of urbansurvival
Special Update: Swedish Krasch!
Subscriber report out of Sweden just in 11:00 CDT:
Hi - The Swedish bourse (biggest Nordic) has crashed as of today. It topped 3 April and has since then declined over 15 percent as of today's closing. Wednesdey last week it fell 4,2 percent, and it was called black Wednesday in Swedish press. But today Monday it fell 5,34 percent, which must be a blacker Monday. It sure can be the beginning of wave three down globally.
Regards KH, Subscriber, Sweden
http://www.ndtvprofit.com/homepage/...id=31331&template=&cache=5/22/2006 8:18:27 PM
Monday, May 22, 2006 (Mumbai):
The markets recorded the highest ever intra-day crash on Monday forcing suspension of trading for an hour.
The Sensex crashed by over 1,100 points for the first time in its history on across the board panic selling.
The memories of 'Black Monday' came back to haunt investors. After hitting a high of 11,142 levels in the opening moves, the Sensex crashed over 1100 points to 9826 levels in intra-day trade.
The market trading was halted for an hour as indices hit the lower circuit. The Sensex ended the day at 10,481 levels.
The Central Board of Direct Taxes (CBDT) earlier in the day, sought to dispel suggestions that its draft circular was ambiguous.
In the broader markets, the Nifty ended at 3081 levels, a fall of 5.1 per cent or 165 points since previous close.
Finance Minister P Chidambaram sought to allay investor apprehensions by saying that investors should stay invested.
"The system is in place and whatever has to be done will be done. There is no problem about liquidity. I have spoken to RBI; there is ample liquidity to meet marginal calls.
"Banks will provide liquidity to anyone who requires margin calls. Fundamentals are strong, what has happened is a certain amount of nervousness in market.
"My advice to all retail investors is to stay invested. Mutual funds are buying and will continue to but I am told FIIs are invested for the long term here," said Chidambaram.
No cause for panic
SEBI chairman M Damodaran said that there was no cause for panic and there was no liquidity crisis.
"I don't think this is a liquidity driven crisis in the market. I think that brokers who have a long-term relationship with banks must have put in resistance to address issues of this kind.
"At the level of the system, I can assure you that there are no problems that have been reported to us or that we have come across," said Damodaran.
The markets on Monday saw the use of index-based circuit breakers for the second time after they were introduced on June 28, 2001. They got activated for the first time on May 17, 2004.
"The intermediate trend is down. We have made a descending top and descending bottom on the technical charts. It is too early to say what the bottom could be," said Salil Sharma, Partner, Kapur Sharma & Co.
"I am not comfortable buying in the markets at current levels," added Shishir Kedia, Technical Analyst, Anand Rathi Securities.
Sensex Top Falls
Date Level Absolute Fall Fall (%)
Apr 28, 1992 3870 570 12.77
May 17, 2004 4505 565 11.10
Apr 4, 2000 4691 361 7.10
May 15, 2006 11,822 463 3.70
May 18, 2006 11,366 826 6.7
BSE 30 | NSE 50 | CNX Mid-cap
Leading the pack of losers at the Sensex was Wipro. The counter slipped 10.4 per cent or Rs 51 by close. Grasim Industries, Larsen & Toubro, Bharti Airtel, Tata Steel and TCS were the other key losers.
Cipla at Rs 225 levels, however, managed to stay afloat. It gained 1.8 per cent by close. Satyam Computer, Reliance Energy and Ranbaxy Laboratories were the other counters that ended in positive turf.
Consumer durables worst hit
The BSE consumer durables index slipped ten per cent or 315 points by close. It was the biggest loser among sectoral indices.
Blue Star Limited and Videocon Appliances were the biggest losers that shed over eight per cent each.
Weakness was also seen in metal counters. The BSE metal index slipped 7.1 per cent or 615 points. Hindustan Zinc at Rs 633 levels plunged 19.8 per cent or Rs 156.
Ispat Industries (down 13.8 per cent), Jindal Stainless (down 13.2 per cent), SAIL (down 12.2 per cent), Sterlite Industries (down 11.5 per cent), NALCO (down 7.2 per cent) and Hindalco (down 4.8 per cent) were the other key losers.
Alstom Projects, Aban Loyd Chiles, Siemens India, Carborundum Universal, ABB, Thermax Limited and Ingersoll Rand were the key losers. The BSE capital goods index slipped 5.8 per cent or 454 points by close.
Global Euphoria Sound Track.....
Ah, and we should be surprised? One good thing here is that the dot gov cannot manipulate via ownership. That is NOT true elsewhere.
Stupid is as stupid does, it seems. First law of investing in equities, don't put more in the market than you can afford to lose, just like going to the tables in Vegas. (Especially true in volatiles like commodities.)
Perhaps more interesting is the offer tha NYNEX is considering. One idea has been floated for the parent corporation to buy a controlling interest in several bourses around the world, particularly in Europe and SEA. I'd say that pricewise, now would be a good time to close the deals. In the meantime, if you have some pin money, buy foriegn stocks. This will turn as soon as the losers are shook loose from the market. The underlying corporate capital is (for the most part) still sound. This whole escapade is a correction, albeit a BIG one.
Side note, the Indian crash is expected to result in suicides. MSNBC reports that they have posted police at favorite places like bridges that have historically attracted jumpers.
Comes as a bit of a surprise that the Oil rich Arabs are having some troubles.
Shoulda stuck with Gold and Oil... The draw of fast bucks in paper trading is like a siren I suppose.
Dubai? Saudi Arabia?
THose are some very wealthy and stable Economic areas.
One thing to keep in mindthrough all of this. Money lost didn't vanish in thin air. Was merely a transfer of wealth from many small investors to a few large ones.
THis is an interesting article as well. Gold is/has been a 'flight to safety' tool. Looks like this guy thought it was a darn good time to get out of the market:
Yeah, I know he's a jeweler but 1.6 million oz of Au seems a little more than for "raw materials"
RIYADH (Reuters) - A private Saudi jeweller has bought 36 tonnes of raw gold from an African central bank for 1.8 billion riyals, a company spokesman said on Monday, confirming a newspaper report.
When asked about the report in leading Saudi business daily al-Eqtisadiah, the spokesman said: "That is correct."
He declined to elaborate.
The newspaper quoted Suleiman al-Othaim, board chairman of the Riyadh-based al-Othaim Gold and Jewellery firm, as saying the gold would be delivered in the fourth quarter of this year.
"The deal was concluded directly (with the unidentified African central bank) without any intermediary," the newspaper quoted him as saying.
That's some "jeweler" !!!!!!.....
Private, direct, 36 tonnes.....
That's a hell of an inventory to lock in at what is supposed to be a soon to be corrected 25 year high !
Wonder how many other "jewelers" are or will be out there buying??????.....
Hmmm.... could'nt resist....
1.8 Billion Riyal.. .26666 exchange rate.... $480 million US....
36 tonnes.... $13.33 million per tonne.... assuming this is metric based on the spelling.... 1000 kg... 1000 Kilograms = 32,150.205761 Ounces (Troy)....
$414 per troy ounce.... sounds like a good deal to me....
That's what it was about a year ago.....
Somebody better check my math.....
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