Saudi Arabia’s stock market regulator, the Capital Markets Authority, is in an invidious position. At the start of the year CMA officials tried in vain to warn naive retail investors about the dangers of piling into the under-researched, thinly traded speculative stocks that comprise nearly a quarter of the country’s public companies. They were ignored: dismissed as interfering, risk-averse bureaucrats. The market, driven by rising corporate profitability resulting from the high oil price, rose to absurd levels.
Who would be a regulator? When the crash it had warned about materialized, the CMA was blamed and explanations were demanded – why were investors not better protected, why had the stock market crashed?
That’s easy: too much liquidity was chasing too few quality stocks in a market lacking independent stock research or informed institutional investors buying and selling on value. Rather, the market was driven by unscrupulous manipulators and speculators. It’s the typical story of the emerging country stock market. But Saudi Arabia is not typical. Oil makes it different. It has a big economy, enjoying high growth and some large oil and non-oil related companies, as well as banks and infrastructure projects, all of which might raise equity capital through an efficient market.