Tadawul’s Sharp Drop: Cause for Concern?

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Saudi Arabia’s stock market, called the Tadawul or TASI (Tadawul All Share Index), nosedived nearly 7 percent today. Why?

Stefan Wagstyl of the Financial Times Beyond Bricks blog writes that investors were shaken of the arrest of a prominent Shia cleric “and the prospects of demonstrations in the Kingdom…The fear of political contagion, it seems, have gripped the kingdom.”

Really?

Assurances of a stable Saudi Arabia are plenty these days. In addition to King Abdullah’s large stimulus-like plan to bolster low-income Saudis and the housing sector announced last week, Ibrahim Al-Assaf, addressing reporters today and noted that the regional turmoil has not caused an adverse impact on the economy, according to Bloomberg.

As Saudi expert Anthony Cordesman wrote in a recent CSIS analysis of Saudi stability, “…There are good reasons to hope that Saudi Arabia will continue on the path to peaceful reform and change. A small, highly vocal minority does not speak for a nation, and Saudi stability may well prove to be strong enough so that the end result is to aid reform rather than threaten the regime.” And as we noted in this blog in yesterday’s feature post, we believe that many are underestimating the popularity of King Abdullah, who, we argue, was a celebrated reformer even before the regional unrest.

However, as we also noted, there is cause for concern. Food prices, unemployment and Saudi’s growing younger population, as well as income disparity and wealth distribution, are all issues that Saudi must overcome.

No one can say for sure why the Tadawul dipped today, but all analysts are watching closely.