Introduction
A stock market is a public organization where shares of listed companies are traded at given prices. Unlike the ordinary market, the stock market is not a physical place but rather a network. This paper seeks to discuss the Saudi Arabian stock market. The paper will look at the performance of the Saudi Arabian stock market concerning its trend and factors that affects the stock market.
Saudi Arabian stock market
Saudi Arabia has a long history of stock exchange that started in the early twentieth century. By the year 1935, the country had realized trading of shares. The market was, however, never developed in those early time periods and only a few companies traded their shares. Regulatory measures were only realized in the country’s stock market in the year 1984 when a body called SAMA was given the task to ensure that all the activities in the share market run smoothly (Cordesman, 2003). The country’s share market also upgraded to using electronic information in the same year. Involvement of companies in the stock market was also slow since, by the year 1965, only about seventy firms were trading their shares at the market with a turnover of about six billion dollars. By the year 1996, the Saudi Arabian stock market still realized a turnover of fewer than seven billion dollars with a decrease in the following year. These values are almost comparable to what the market realized in the year 1965 indicating that the market had elements of stagnation. One of the reasons for low turnover was attributed to the fact that the government-owned most of the market share (Cordesman, 2003). Even though the Saudi Arabian stock market has a long history, moves to formalize it together with its operations only started in 1980 with success being made in the year 2003 following the enactment of Saudi capital market law (Ramadi, 2010, p. 1). Establishment of the law has since then realized restructuring of the market (Ramadi, 2010).
The trend in the Saudi Arabian stock market
The stock market has over the past ten years realized variations in its index. The market index entered the new millennium at about two thousand points. This value was maintained until sometime in the year 2003 when a rise was recorded. The increase continued through the year 2005 to reach its peak in the year 2006 at about 20,630 points. This was then followed by uneven drop in points that has been oscillating at about six thousand points (Trading, 2011). Valued at about six billion dollars in the year 1997, the Saudi Arabian stock market has realized a massive development to its current worth of about five hundred billion dollars. The improvement over the period is impressive following the fact that the value stagnated at low values for almost half a century and then only took thirteen years to realize an almost five thousand percent increment. According to Samirad (n.d.), the number of shares that were traded at the market was about three hundred million in the year 1997. This also realized an increment to reach sixty-eight billion in the year 2006. The stock market in Saudi Arabia has therefore been growing in terms of the number of shares being traded in the market as well as the prices of the shares. The increasing number of shares can be attributed to initial public offers as a result of increased number of listed companies among other factors (Samirad, n.d.).
Factors affecting the Saudi Arabian stock market
One of the forces that drive the stock market in Saudi Arabia in the oil market that is a key to the country’s economy. According to research conducted by Arouri and Rault (2011), it was revealed that contrary to other oil-producing countries, there exists a significant relationship between the stock exchange market and the oil market. The trend in oil prices in the country positively predicts developments in the stock market (Arouri and Rault, 2011). Other factors that have been identified to generally have a direct impact on stock markets include the frequency of saving, inflation, and the liquidity of the stock market (Naceur, Ghazouani & Omran, 2007, p. 486). These factors affect the amount of disposable income that is then transferred to the stock market in the form of investments. Financial intermediaries are recognized as additive components in the stock market that plays an important role in facilitating its activities. Higher levels of liquidity in the stock market and checked inflation rates have positive effects on stock markets. The Saudi Arabian stock market is therefore under influence of several factors (Naceur, Ghazouani & Omran, 2007).
Conclusion
Though the stock market in Saudi Arabia was established a long time ago, its formalization only came later in the year 2003. The stock market only picked its active operations after this time to record a high level of performance. The legislation in the year 2003, oil factor among other factors has thus been key drivers of the country’s stock market.
References
Arouri, M & Rault, C. (2011). Politics and economic development. Web.
Cordesman, A. (2003). Saudi Arabia Enters the Twenty-first Century: The political, foreign policy, economic, and energy dimensions. Westport, CT: Greenwood Publishing Group.
Naceur, S.M.., Ghazouani. M & Omran, M. (2007). The determinants of stock market development in the Middle-Eastern and North African region. Web.
Ramadi, M. (2010). The Saudi Arabian Economy: Policies, Achievements, and Challenges. New York, NY: Springer.
Samirad. A. (n.d.). Stock Exchange. 2011. Web.
Trading. (2011). Saudi Arabian stock market index. Web.