Billionaire boosts Saudi stocks

Sentiment has suffered on Arab markets in recent days

Saudi stocks have rebounded after Saudi billionaire Prince Alwaleed bin Talal announced he would invest significantly in the Saudi bourse.

Kingdom Holding, the Prince's business, could invest up to 10bn Riyals ($2.7bn)(£1.54bn) in the near future.

Stocks across the region had been at an 11 month low, but rose by over 4% after Prince Alwaleed's statements.

The Prince's decision came as the Finance Ministry said it might allow foreign residents to invest directly.

"Splitting shares is beneficial and allowing foreign residents [to invest] is a very good decision", said the Saudi prince.

Trading earlier in the day had seen the Saudi Tadawul All-Shares Index (TASI) drop 4.81% - or 717 points - to 14,182.90, but the Prince's announcement boosted the market by 4%, almost regaining the previous day's loss.

The TASI - the biggest Arabian market - lost about 17% of its value since its close on Friday, but this was up from its earlier low of 21%.

A market bubble

Experts have been blaming the losses on fears that stocks in the region were overvalued.

Prince Alwaleed said: "What happened a few months ago on the Saudi market is that speculators dominated the market and created a bubble."

"The sentiment in the entire region is negative," Hany Hussein, fund manager at Mashreqbank in Dubai told Reuters.

He added stocks were experiencing a period of readjustment after strong oil prices and healthy earnings had triggered market growth of 92% in 2005.

Experts have warned that banks in the region could slash the weighting of Gulf stocks in their portfolios by almost 30% as a result of recent concerns.

'Demand dries up'

"It was blind demand that propelled the Gulf bourses to the exaggerated valuation ratios," said Abdelmounaim Addas from Saudi-based Abalkhair Financial Consultancy.

"This demand has dried up and resulted in lesser liquidity because of the public confidence crisis in these markets."

Analysts have also warned that a record number of initial public offerings are also taking their toll - up to 100 companies plan to make their market debut this year, double that of 2005.

Furthermore, the sell-off has left the market in a downward spiral, experts added.

Investor confidence has taken a knock, sparking a sell-off, and in turn the continued falls are prompting more investors to dump their holdings.

Stocks around the region have been retreating from all time highs in recent weeks.

Markets slump

But despite calls for action, the Saudi government has declined to intervene in the stock market.

However, on Tuesday the market closed 11.71% down at 611.86 points - its lowest level in almost a year.

The Abu Dhabi Securities Market, Kuwait Stock Exchange, Qatar's Doha Securities Market and Bahrain Stock Market also continued to move lower on Wednesday.