A sea of liquidity.

AS INDUSTRY AND COMMERCE have developed and an increasing number of joint stock companies have been established, this has led to the creation of an embryonic stock market. Some years ago, a stock exchange floor actually opened for two weeks, but Sama (the Saudi Arabian Monetary Agency) has been developing an aggressive programme of improved technology to make share trading through the banks more efficient and timely. Deals are currently done through the individual banks and are matched in the Sama computer.

Following the conclusion of the Kuwait war, the stock market enjoyed a boom period with the Saudi stock market index climbing from under 100 in January 1991 to 218 last August, though it subsequently slumped to 192 in early January.

The market remains very liquid, and currently there appears to be too much money chasing too few shares, hence the government's desire to mop up this surplus by bringing several new companies to the market, at the same time allowing more established names to issue further tranches of shares.

Last year proved very much a water-shed. January saw Riyad Bank come to the market, with an offer of eight million shares - the largest bank share issue in the country's history, and this was three and a half times oversubscribed. Since then there has been a steady flow of new issues successfully launched, as the Saudi public has acquired a taste for stocks and shares.

Several of the other banks have taken the opportunity to make offerings that have been massively oversubscribed, including Al Jazira and Saudi Cairo Bank. The shares of Al Bank Al Saudi Al Fransi commenced trading in early December. The next issue to be released is Saudi American Bank (Samba), followed by Saudi British Bank.

Companies over a wide range of sectors have successfully entered the market. For example, back in October 1991, Savola, a diversified company involved in dairy products, vegetable oils and feedstuffs, offered 1.2 million shares which were oversubscribed more than twelve times, with 1.6 million applicants applying for shares.

The combination of increased liquidity, affluence and a newly found enthusiasm by the wealthy Saudi middle class to look at investments that offered an attractive alternative to the current low US dollar interest rates.

In the first part of last year the demand for new issues was such that investors were often doubling their money within two months. One of the problems, however, was the dearth of allocated shares in some new issues. The maximum number of shares offered to any investor in the Riyad Bank issue was 16.

The banks are actively involved in the stock market. In fact in 1991 Riyad Bank had around 20% of the market share. This year, they have been joined by Saudi American Bank, Al Bank Al Saudi Al Fransi and Saudi British Bank. Saudi Investment Bank is also surprisingly strong, with the avowed aim to become "the Swiss Bank of Saudi Arabia."

Most banks have now installed ESIS (the Electronic Securities Information System) in at least some of their branches. This provides an electronic means for the bank's customers to follow share prices in some individual branches and buying and selling prices are available, with orders entered electronically and the matching done at Sama.

One of the problems faced by the stock market is that only Saudi nationals can trade in the majority of Saudi shares, though a few may be held by GCC nationals. Saudis are also able to buy foreign stocks, and several banks have developed this service. Interest centres largely on US stocks, followed by selective offerings from Britain and Germany. German, American, French and Canadian bonds are also traded. Specialised mutual funds are also coming to the market more frequently and attracting considerable enthusiasm among local investors.