The Impact of Share Trading on the Household Spending Behaviors
Fouad Sadek Mufti Al-Hayat - 25/03/06//
The Saudi Stock Exchange phenomenon has dominated, like different Gulf and Arab markets, all the other social phenomena. Interestingly, such unprecedented development was coupled with an unparalleled household total devotion, from husband to wife and other family members, even children who astonishingly follow the Stock Exchange movement - a unique behavior compared with other societies!
Frankly speaking, I will not delve into the technical aspects characterizing the tumultuous market movement that equally turns the daily family life upside down. Instead, I will address one effect, i.e. the household spending and consumption behavior and the psychological factors affecting it.
Just before the "stocks boom," i.e. when stocks prices soared swiftly and continuously, the Saudi economy, including the production, service, and construction sectors, has been prosperous and stable. Markets, too, have flourished with the establishment of giant trade markets and huge fairs - a natural outcome of the flowing financial liquidity at the disposal of many segments of society.
Then came another "phenomenon": that of stocks and investment funds diverting liquidity from trade to Stock Exchanges. Therefore, trade shrank, while the previously lavish consumption spending was rationalized. Besides, the available liquidity was pooled to be invested in Stock Exchanges, such as:
Funnel consumption spending to many "durable" commodities, like furniture, cars, and electrical appliances
Freeze some construction projects and build private dwellings or others for investment purposes
Curtail the movement of land purchase and sale
Freeze some small-scale industrial projects, especially following the new constraints to rationalize the foreign labor force
Annul or postpone some investment projects. Purchase real estate abroad then channel their funds to speculation on shares
This was indeed true early last year when the prices of stocks spiraled upwards, thus yielding huge unbelievable returns in such a short period of time. Nonetheless, the so-called "profit making" prior to the severe downturn in Stock Exchanges was coupled with another widely unnoticed "adjustment" process known as the compensating spending. As a matter of fact, the beneficiaries of these considerable profits sought to execute the delayed projects or spent lavishly on the durable consumer goods. For instance, they changed their furniture or cars, bought or built a new house or even purchased a residential piece of land for investment purposes. Hence, the movement of traded funds and consequently the previously stagnating trade markets were reinvigorated. As the proverb says, "Every cloud has a silver lining" or "the misfortunes of some people are advantages to others." May God protect us from these misfortunes!
Finally, I cannot but reassure all those who suffered from a setback. Always remember that you have only lost "presumed" profits so long as your capital is intact… To them I say - as our brothers, the Lebanese, generally say - May you be recompensed!
* Mr. Fouad Mufti is a former Saudi ambassador.
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