JEDDAH/LONDON: World stock markets tumbled for a second straight day yesterday, with investors unnerved by the risk of a full-blown global financial crisis despite huge cash injections from central banks. Wall Street continued the rout that began in Asia and spread to European exchanges a day after US investment giant Lehman Brothers stunned the market with a bankruptcy filing.
Shortly before 1 p.m., the Dow Jones Industrial Average was up 23.53 points, or 0.22 percent, at 10,941.04. The Standard & Poor’s 500 Index was up 1.66 points, or 0.14 percent, at 1,194.36. The Nasdaq Composite Index was up 1.76 points, or 0.08 percent, at 2,181.67.
In London, the FTSE 100 index closed down 3.43 percent to 5,025.6 points, having been down more than 4 percent at one stage to breach support at 5,000 points, the first time it had fallen below this level since June 9, 2005.
In Paris, the CAC-40 shed 1.96 percent to 4,087.40 points and in Frankfurt, the DAX was off 1.63 percent at 5,965.17 points, with both markets down more than three percent earlier in the day. Elsewhere in Europe, losses were widespread, with some of the smaller markets among the worst hit.
In Russia, the main RTS stock market suspended trading after falling by more than 11.47 percent, a spokeswoman said, following a move by the No. 2 Micex bourse to do the same.
With nerves jangling, the US Federal Reserve, European Central Bank, Bank of England and Bank of Japan together injected $210 billion into the money markets yesterday to boost liquidity.
Gold earlier fell nearly 2 percent alongside a sharp drop in oil, turned higher, then fell again. Spot gold prices fell $9.20 to $777 an ounce.
A decline on most Gulf Arab bourses slowed yesterday.
Oman’s benchmark led the losses, falling more than 3 percent and ending at its lowest level in almost 11 months. The main index ended down 3.44 percent at 7,900 points, its lowest close since Oct. 24.
In Saudi Arabia, the Tadawul All-Share Index (TASI) fell 38.44 points to close at 7,216.61. The index plummeted 6.5 percent on Monday.
Faisal Alsayrafi, managing director and CEO of Financial Transaction House Co. (FTH), one of the leading investment banking firms in the Middle East, said various reasons caused the recent stock market debacle in the Kingdom.
Enumerating them, he said, “First, the new regulations of the Capital Market Authority (CMA) regarding displaying of holdings of shareholders in the listed companies on Tadawul website to enable investors to view all substantial shareholders who own five percent or more of each company’s shares has raised negative impact on the stock market.
“Second, the implementation of CMA rules regarding denominations of halalas, though it is not the reason behind the fall in stock prices. However, investors are translating this as a negative change and increasing the psychological strain of the market.”
Alsayrafi also said all the smart money are on the sideline. Investors are watching from outside. There is not enough liquidity in the market to move.
John Sfakianakis, chief economist at SABB (The Saudi British Bank) said that that GCC will remain decoupled from the global financial turmoil. “Although it’s difficult to measure the precise impact of the US financial crisis which is unfolding day to day we can’t deny that the GCC will remain isolated and decoupled from the financial turmoil happening outside the region. Although banks might not be directly affected due to Lehman’s collapse, individual investors in the region could be impacted.” He added: “And in many ways we are still at the beginning of the post-Lehman crisis which doesn’t provide us with enough insight about the state of the US economy and its ripple effects throughout.
However, the credit crisis the world is grappling with is affecting the region as the supply of credit into the GCC is not readily available and local credit support is not enough in a deposit restricted environment by the entire regional banking system.”
He, however, said there are two positive, mainly unintended, consequences from the credit crisis. “Firstly, unscrupulous spending in the region could subside and as a result inflation could subside more than anticipated in the coming quarters. The regional stock market collapses are offering very strong valuation that is bound to attract more long-term value-based investors, which would lead to a healthier development. Lastly, the region despite the challenges it faces will continue to fare far better, even if oil prices dip below $90, than most emerging market economies. However, this crisis does offer the region a way to set new priorities.”
Kuwait and Abu Dhabi bucked the downtrend. Dubai’s benchmark declined 2.22 percent to 3,954 points. Qatar’s main index ended down 0.49 percent to 8,176 points. Abu Dhabi’s main index rose 0.42 percent to 3,770 points. In Kuwait, the benchmark closed 0.08 percent higher at 12,370 points. In Bahrain, the benchmark closed 0.33 percent lower at 2,490 points.
The banks were especially under pressure from the Lehman’s failure and the prospect of more bad news to come, dealers said. They said that if AIG were also to go under, the impact could be even greater given the scale of its investments and borrowings.
British bank HBOS, whose Halifax unit is the biggest mortgage lender in Britain, shed more than 35 percent of its value at one stage, prompting it to rush out a brief statement to reassure investors.
Switzerland’s biggest bank UBS, among the worst hit by the collapse of the US subprime or higher risk home loan market, suffered too, losing 17 percent while the overall Swiss market shed nearly three percent.
UBS shares have lost 73 percent since the beginning of the year as it has chalked up billions of dollars in losses on its subprime exposure and yesterday it again tried to reassure investors it was strong enough to survive.
Investors were faced with an array of bad news that went well beyond the fall of Lehman, a 158-year-old institution that had survived the market crash of 1929 that heralded the Great Depression.
Across Asia yesterday, officials called emergency meetings as trading screens went red yesterday.
Japanese shares dropped almost five percent and Hong Kong shed 5.4 percent.
Seoul shares closed 6.1 percent lower while the South Korean currency, the won, fell 4.3 percent against the dollar, its biggest daily drop in a decade.
Oil prices fell yesterday, slipping under $89 on the belief that weak economic growth will result in lower energy demand, traders said.
OPEC yesterday cut its world oil demand growth forecast for 2008 to 1.02 percent from 1.17 percent previously, in the face of falling demand already occurring in the United States, the world’s biggest energy consumer.
The price of crude oil has now plunged by about 40 percent since striking record highs above 147 dollars in July.
London’s Brent North Sea crude for delivery in November tumbled to a seven-month low of $88.99 per barrel. The contract later stood at $90.79, down $3.45. New York’s main contract, light sweet crude for October, lost $4.34 to $91.37.
— With input from agencies