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The Souk Al-Manakh Stock Market Crash

Introduction

In August of 1982, an informal Kuwait stock market known as Souk al-Manakh collapsed (Rasmaroni, 2006). This happened when a female speculator presented a post-dated check for payment and it bounced (“Kuwait's Souk”, n.d.). This relatively small destabilising factor caused enormous losses, and the financial system was nearly crippled with some $92 billion (Rasmaroni, 2006) from about 6,000 investors (“Kuwait's Souk”, n.d.). Is this event the only factor that caused the crash? And what made the crash so huge? To reveal the answer we have to dig deeper into history.

Definitions

It might be interesting to explain some technical terms before we dig deeper into history. It is essential to understand them in order to know what the text is about.

post-dated check: “A check issued at present but with a later maturity date so it cannot get encashed at the present date. The check is like a promissory note and no legal action can be taken if the account closes down or there is shortage of funds.” (“Postdated Check Definition”, n.d.)

over-the-counter (OTC) stock exchange: A market for securities which are not traded on an exchange, usually due to an inability to meet listing requirements (“Over the counter”, n.d.).

bull market: “A prolonged period in which investment prices rise faster than their historical average.” (“Bull market”, n.d.)

Background

The Kuwait stock market started operating soon after its independence from the British in 1961 (Hassan, Al-Sultan, and Al-Saleem, 2003, p. 7). In the late 1970s people in the Persian Gulf countries became very wealthy due to the rise of the oil prices. Kuwait received a large share of the fortune (Veneroso Associates, 1998). Kuwait came into a bull market as new rich Kuwaitis turned to the stock markets to store their wealth (“Kuwait's Souk”, n.d.). These funds prompted a speculation boom in the official stock market in the mid-1970s that culminated in a small crash in 1976 and 1977 (Hassan et...