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Asia/South Asia
Saudis take to cafe culture with a twist of speculation
Roula Khalaf

          Dark blue sofas are arranged in rows in front of a giant screen. Men sit around leisurely drinking coffee, smoking and chatting as their eyes follow the flickering lights on the screen.
It may have the feel of a cafe and the appearance of an entertainment centre but this is the "investment lounge" at a branch of the Saudi British, Bank in Riyadh, capital of the conservative Saudi kingdom, where such things as cinemas and concerts are banned.
For four hours every morning, and another four in the late afternoon, the room is packed with men -- young and middle aged -- who come to track stock prices on the screen and make investment decisions.
Investment lounges such as this have proliferated over the past two years as the Saudi stock market has surged, fuelled by the spectacular rise in oil prices. Banks have opened lounges for women and "premium" lounges for their best investors. Some are decorated with wood-panelled walls, leather sofas and marble floors.
"It's a service that the banks offer but it's become a social thing now," says one banker. "Some people come and stay for hours. They follow stock prices, and call up their brokers."
The stock market craze is the most obvious sign of the economic boom in the world's largest oil producer. Though still underdeveloped -- there are only 74 listed companies and the largest are still majority owned by the government -- the electronic bourse in Riyadh now has a capitalisation of $500bn, up from $76bn in 2003. The Tadawul all-share index is 60 per cent up over the past six months and reached, of late, a new high.
So extraordinary is the liquidity and so limited the reliable research on companies that investors act on tips heard from friends, internet chat rooms and message boards, driving prices of even money-losing stocks steadily higher.
The market has spawned a new culture, one that is celebrated by some but alarming others. In an absolute monarchy where people are often kept in the dark about how oil revenues are spent, the government has looked to the stock market to spread some of the accumulating new wealth.
According to Samba, a leading local bank, Saudi Arabia is expected to make more than $150bn in oil revenues this year -- an increase of almost 50 per cent over last year.
Initial public offerings (IPOs) of companies in which the government has a stake -- though still few and far between -- are priced artificially low and the number of shares each individual is allowed to subscribe to is capped. Only Saudis have open access to the bourse, with nationals of other Gulf countries restricted to a few stocks. Foreigners are allowed to invest only through mutual funds.
Bishr Bakheet, a financial adviser whose company is one of the rare providers of research reports, says there are now more than 2.5m Saudi holders of stocks for a local population of 16.5m (there are another 6.0m expatriates), half of them under 20 years of age.
"There's nothing called an institutional investor and mutual funds represent only 6.0 per cent of the shares that are traded on the market," says Mr Bakheet.
The government strategy was illustrated starkly by the flotation of al-Bilad, a commercial bank formed from the merger of several money changers. Nearly half the Saudi population bought shares. Sold at 50 riyals a share earlier this year, it is now priced at 800 riyals.
"Bedouins who never thought of registering newborn babies are now doing it so they can buy them shares," says Basil al-Ghalayini, head of BMG, a structured finance advisory firm. "But inexperienced investors are buying companies left, right and centre ... thinking they can double their money in a year."
Bankers say the infrastructure needed to instil greater discipline and transparency on the bourse is coming into place.
The Central Market Authority, the regulator that started operating last year, is set to license domestic and foreign brokerages and investment banks.
The CMA has fined 44 board members and executives in 35 listed companies for having acted on privileged information. Bankers say the authority has also been talking to them about limiting borrowing for stock purchases.
But to the small investors gathered at the Saudi British Bank investment lounge, the details of the bourse's development are a distant worry, as apparently are alerts of overvaluations. One investor says he has lost money once, in a market dip earlier this summer, but on the whole he is hugely pleased and the internet sites he looks at predict that the good times will continue.
Exclusive to FE under syndication arrangement


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