Al Waleed bin Talal--Saving the Saudi Market.(Interview)

Byline: Stephen Glain

Saudi Arabian prince Al Waleed bin Talal, one of the world's richest men, is now also one of the kingdom's most popular citizens. Last Wednesday, the 49-year-old investor said he would plow some $2.7 billion into the Saudi share market, which has tumbled dramatically since late last month after posting gains of more than 200 percent over the past two years. The market's key index rebounded 4 percent on his announcement, which comes as many Middle Eastern markets are suffering major corrections. Bin Talal, whose $20 billion portfolio includes a $10 billion share of Citigroup and major stakes in a network of luxury hotels, remains bullish and still plans to list 30 percent of his main investment arm, Kingdom Holdings, on the Saudi exchange later this year. He spoke with NEWSWEEK's Stephen Glain last week. Excerpts:

GLAIN: Why buy now? Why not wait for prices to get cheaper?

BIN TALAL : Let me explain. The stock market in Saudi Arabia went up substantially in 2005, and it reached a point where there was no distinction between those companies that deserved a high price/earnings ratio and those that didn't. What I perceived last Wednesday was an opportunity to calm down fears in the market. Otherwise, panic--a huge panic--would have taken place. The problem is there is a lot of excess cash in Saudi Arabia with few investment opportunities. People here can only invest in stock and property, and it's important to know that 70 percent of the shares in listed companies are controlled by the government or state-controlled agencies. Another 20 percent is held by big investors like me who never sell. There is too much cash chasing too little tradable equity.

How do you plan to educate investors?

The best education comes in the market, where investors get punished for believing that whatever goes up can go on forever. We also need two parallel markets, one with the big-capitalized companies, call them the big caps, and another with the small- to midsized caps. Like America has with the Dow Jones and the Russell 2000 indices.

So which sectors look good to you?