Saudi Arabia's stock collapse

By Jia Lynn Yang, Fortune writer-reporter

(FORTUNE Magazine) -- After rising from 2,500 to 20,000 points in three years, the stock market dropped to 8,019 last month. It's Riyadh's Black Monday.

1 What's happening? In two weeks, beginning Oct. 28, the Saudi market, called Tadawul, plunged 20%. It's the second time stocks have hit the skids this year, and investors have every reason to feel queasy: The market has lost more than half its value since an all-time high in February.

2 Why all the volatility? The country has been awash in oil money with nowhere to go but the stock market. The result? A classic bubble. (The average P/E ratio was as high as 50.) Also, the stock market is still unsophisticated, with few institutional investors and no short-sellers. "You had everyone buying together, and now you have everyone selling together," says Tarek Fadlallah, a director of equity sales for Nomura in Bahrain.

3 Who's been burned? Middle-class Saudis. Some sold their cars or spent their life savings to enter the market. Schoolteachers were admonished for day-trading. Half the 17.4 million population participated in an IPO of the petrochemical company Yansab last December. The recent cancellation of a popular after-work trading session helped trigger the recent collapse.

4 So why do I care? The despair could spur unrest in a strategic U.S. ally, says Ali Al-Ahmed, a Saudi scholar and director of the Gulf Institute think tank: "If there is such a thing as a bread revolution, this could be a stock revolution."  Top of page

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.