Fueling Bubbles in Saudi Arabia

By Dr. Duru written for One-Twenty

February 20, 2006

On Friday, Forbes published an article called "Saudi Arabia: Day Traders And Mall Rats." This article is fascinating in many ways as it describes wide swaths of life in Saudi Arabia. But what struck me in particular was that the stock market in Saudi Arabia has been hitting all-time highs. I am obviously far behind on this news flash. The Saudi stock market, as measured by the Tadawul All Share Index (TASI), has actually been on a tear of bubblicious proportions. This year alone, the index has soared 20%. Year-to-date, the index has approximately doubled. Except for a hiccup in July, the index has gone nearly straight up to today's all-time highs (see chart below from the Tadawul website - I could not get longer-term charts for some reason):

Tadawul All Share Index, year-to-date

An even better view of the Saudi bubble is given in the December 1, 2005 issue of the Australasian Investment Review. On page 19, we find that the Saudi market has actually risen 450% since January, 2002!!! I have placed a copy of that chart below. Note that includes the stock index from the UAE, and it attempts to draw analogy to the bubble in the NASDAQ, including a forecast of an imminent pop...

Saudi, UAE bubbles

Anyone who drives a car or truck can probably guess that the Saudi bubble has been fueled by the gush of oil money flowing into the Middle East. All that cash has to go somewhere, and the stock market is typically a willing recipient of excess liquidity. I am somewhat embarrassed to remind folks that when I asked "where will the next bubble grow?", I did not even think to point folks to the stock markets of the countries flush with oil money. Now that these markets are on my radar, I am sure the jig is coming to an end soon, but you should take note that the bubble-qualities of the global economy are from cured. In fact, we continue to see evidence that bubbles are a natural and inherent feature of market activities. Having said that, if you find a way for an American citizen to participate in the party, let me know! :D

In the meantime, be careful out there!

DrDuru, 2006