Middle East Stock Market Meltdown: Likely Driven By (Political Economic) Insider Selling

I wouldn’t deny that the meltdown in Saudi stocks, which had been down for 21% for 13 consecutive days have been politically driven. This applies to most bourses in the region too.

But before my explanation let’s go to some expert opinion or mainstream reporting.

According to Bespoke Invest (also the source of the chart above) [emphasis added]

Back in late January, the TASI saw a one-day decline of over 6% on 1/29 when tensions began to escalate in Egypt. When things settled down in Cairo, the TASI rebounded back above its 50-day moving average, but it then began to roll over again when tensions moved to Libya. Watching the charts must be a popular past time in Saudi Arabia, because once the index broke below its January lows, the bottom literally fell out of the index. With the March 11th Day of Rage coming up in Saudi Arabia next week, are traders in this market anticipating a replay of Egypt or Libya?

The Wall Street Journal adds, (emphasis added)

Large scale instability in North Africa and protests in neighboring countries [Bahrain, Oman, Yemen] have culminated in a significant selloff as investors are growing increasingly concerned that protests and subsequent instability could ultimately reach the Saudi market," said an analyst at Riyadh-based NCB Capital. "We firmly believe that fears of instability reaching the Saudi market are overdone, despite reports of calls for demonstrations in the coming days."

Saudi Arabia recently introduced a number of nonpolitical changes, estimated to cost around $36 billion, but there have still been signs of domestic discontent since Tunisia's popular uprising in January.

While foreign investors continued to cut their equities exposure to the region, the selling was mainly retail-driven—exacerbated by margin calls and redemptions at local Saudi funds, traders said.

The reason I’m not gonna deny this politically instigated collapse as a valid driver is that the declines have been far stretched or extended than the counterparts in non-MENA emerging market bourses. This implies something more than meets the eye.

I might add that, aside from foreign investors, importantly, I suspect that the insiders (meaning those economic and political agents whose stakes had been built around the current regimes over the years) could have been liquidating their stakes in fear, that in the event these People Power revolts become successful, the new administrations would resort to the sequestration or a freeze on their assets to appease the incensed populace or as indemnity for their political misconduct.

This has already happened to former Egypt President Hosni Mubarak, whose assets have been frozen by the Egyptian government, while other foreign banks as the Swiss appear to be headed for the same route as seen with its scrutiny of Tunisia’s deposed president Zine al-Abidine Ben Ali’s transactions.

So the likelihood would be for these embattled political economic agents to scramble and exit from conventional asset holdings, and subsequently, divert their assets outside of the region.

So yes, insider selling could likely be a crucial factor in the current market actions, while foreign selling and panicking retail investors have all combined to worsen these conditions.

The Bloomberg GCC 200 Index, a capitalization weighted index of the top 200 equities in the GCC region based on market capitalization and liquidity, reveals of the broad market declines of major Middle East stocks as the People Power movements ripple across the region.

And possibly gold and other commodities could signify as alternative ways to shelter the assets of these insiders.