JEDDAH, 29 January 2008 — Gulf Arab benchmarks, except for two, recoiled yesterday, with Saudi Arabia and Dubai nursing losses of more than 3 percent, after equity markets in Asia tumble on concerns about slowing global economic growth. European stock markets also fell sharply yesterday as investors worried about possible recession and a forthcoming interest rate call in the United States.
The Saudi all-share index fell 4.08 percent to 9,389.52 points as Saudi Basic Industries Corp plunged 4.30 percent.
Shares of Rabigh Refining and Petrochemical Co (Petro Rabigh) fell more than 7 percent on their second day of trading as a sell-off in Asian markets weighs on Gulf stocks. The stock surged almost 150 percent above its initial public offering price of SR21 on its first day of trading and closed at SR52. It was down 6.22 percent at SR48.75, having dropped as low as SR47.25.
The Saudi banking index fell to a two-month low as banks extend losses after disappointing fourth quarter earnings.
Al-Rajhi Bank, Samba Financial Group, Banque Saudi Fransi and SABB, four of the five largest banks by market value, missed fourth-quarter profit forecast.
The bank index has dropped 20 percent since SABB — the first of the five to report — announced its earnings on Jan. 15. It hit a two-month low of 24,158.54 points during the session and ended 3.87 percent down.
“It’s not just the fourth quarter that investors are concerned about, it’s also the outlook,” says Youssef Kasantini, chief executive of Bourse Experts.
Rajhi fell 3.80 percent, Fransi 5.97 percent, SABB 2.94 percent, and Samba 3.55 percent.
“There is a growing correlation between what’s happening here and the global markets picture,” said Youssef Kasantini, chief executive of Bourse Experts, a Riyadh-based consultancy.
Funds were selling Gulf stocks in response to losses in other markets, investors were concerned that a slowing global economy could hurt demand for exports from companies like SABIC and both these factors were weighing on sentiment, he said.
Dubai’s benchmark fell 3.42 percent to 5,475.92 points, weighed down by Emaar Properties. Emaar tumbled 4.98 percent.
“The region is tracking the fall in Asian markets,” said Amr Diab, head of brokerage sales at EFG-Hermes investment bank in Dubai.
“It’s a chain reaction to a global sell-off,” said Mohammed Alami, relationship manager in the dealing room at Naeem Shares & Bonds. “Confidence is fragile and even long-term investors are beginning to sell.”
Abu Dhabi’s index fell 1.14 percent to 4,630.02 points. Emirates Telecommunications Corp dropped 2.24 percent.
Kuwait’s benchmark closed lower for the first time in four days as a sell-off in global equity markets weighed on Gulf Arab stocks.
The index ended 0.01 percent lower at 13,334.50 points. Commercial Bank of Kuwait is the biggest loser among the 10 largest stocks, dropping 2.44 percent.
Qatar Gas Transport Co dropped 2.08 percent, dragging the Doha benchmark 0.28 percent to 9,551.64 points.
Oman and Bahrain stock indexes however rose 0.79 percent at 9,311.29 points and 0.42 percent to 2,812.42 points, respectively.
Asian and European stock markets fell sharply again yesterday as investors worried about possible recession and a forthcoming interest rate call in the US, analysts said.
The Paris market fell amid anxiety and tension after an alleged seven-billion-dollar fraud was unearthed last week at French bank Societe Generale.
Nervous investor sentiment would drive the direction of world stock markets this week, according to CMC Markets trader Matt Buckland. “It’s going to be the sentiments of traders, rather than the fundamentals, that determine just how far markets come off in the near term,” he said.
In France, the CAC 40 index of leading shares dived 2.01 percent to 4,780.18 points, Germany’s DAX 30 tumbled 1.55 percent to 6,711.07 points and Britain’s FTSE 100 shed 1.96 percent to stand at 5,754.10.
In Asia, fresh jitters about the outlook for the world economy also seriously rattled markets, dealers said.
They added that investors fled to safe havens such as bonds and gold as markets around Asia slumped deep into the red in the wake of pre-weekend losses on Wall Street, with Shanghai plunging by about 7.2 percent.
Hong Kong closed down 4.25 percent and Singapore tumbled 3.75 percent. Tokyo ended down nearly 4.0 percent as Seoul lost 3.85 percent.
“Recent volatility continues with worries over US recession weighting,” said one London based trader.
“The focus today (Monday) is clearly on the reaction of European markets to weakness in Asia overnight, and all eyes will turn toward Wednesday evening’s Fed rate decision.” Most traders predict that the US Federal Reserve will cut American borrowing costs on Wednesday. In an emergency move last week, the Fed slashed rates by 0.75 percentage points to 3.50 percent in a bid to allay US economic concerns.
Lower borrowing costs can increase company profits because they trim loan repayments while also boosting consumer income.
Market views are also mixed about whether the central bank’s efforts will be enough to prevent the US economy from slipping into recession.
“If the Fed makes another rate cut, the market will be likely to take the decision positively,” said Mizuho Research Institute senior analyst Koji Takeuchi.
“But the market may turn cautious, as there are expectations that the forthcoming data may revive concerns about the US economy,” said Takeuchi.
World equities were also battered last week by fears about the health of the global financial sector after it emerged that Societe Generale had a deep hole in its accounts attributed to fraudulent dealing by a lone trader.
In New York, US stocks swung higher yesterday in volatile trade, wiping out opening losses, after a steep slump in new-home sales renewed worries that the world’s largest economy could tip into recession.
The Dow Jones Industrial Average climbed 46.34 points (0.38 percent) to 12,253.51 around 1550 GMT and the tech-laden NASDAQ gained 8.31 points (0.36 percent) to 2,334.51.
The broad-market Standard & Poor’s 500 index rose 8.08 points (0.61 percent) to 1,338.69.
The major Wall Street indices had retreated Friday, capping a volatile week for global markets amid US recession fears: the Dow dropped 1.38 percent, the NASDAQ 1.47 percent and the S&P 500 1.59 percent.
Data showing a bigger-than-expected drop in December sales of new homes in the US helped underscore sentiment that the housing crisis has not yet hit bottom.