JEDDAH/LONDON: Desperate new measures by governments in Europe and North America to stabilize the financial system failed to stop panic selling that swept global markets yesterday amid deepening gloom at the scope of the banking crisis.
Nothing seemed to stop stock markets taking, in many cases, record falls.
Arab stock markets witnessed another bloody day yesterday as all regional bourses resumed trading after the Eid Al-Fitr holiday. It was the second straight day of heavy losses for most regional markets, excluding the Saudi one that resumed trading yesterday.
World stock markets also plunged yesterday, striking four-year lows in London and New York, as the financial crisis showed no sign of abating despite a multi-billion-dollar bailout for US banks.
In Saudi Arabia, the Tadawul All-Share Index (TASI) finished down 9.81 percent or 731.89 points at 6,726.60, its lowest level in more than a year. It was the biggest single-day loss in several years. TASI had already ended the third quarter the previous Monday, before the holidays, at 7,458.50 points, down 20.2 percent. The market is now 39 percent down on the year. It was one of the worst days in the history of Saudi shares. All the 124 stocks that traded dropped by close to 10 percent, the maximum allowed under Saudi law.
The market turnover was also meager at SR1.39 billion yesterday compared to average daily turnover of SR4 billion to SR5 billion. According to an eyewitness account, some Saudi investors who were monitoring screens, fainted after seeing their stocks falling like ninepins.
Investors in the Saudi stock market could be cautious as to the extent of Saudi investments in the US and Europe and the degree of risks involved, Saudi financial analyst Rashed Fouzan said.
“The impact of the global financial crisis on the Saudi market could be minimal, but lack of transparency in this respect has a negative effect,” he added.
Saudi Arabian bank shares slid yesterday, punished by poor outturns in growth or earnings and worries over whether lenders stood in the path of the widening financial storm.
Saudi bank profits have soared on an economic boom fueled by a near five-fold rise in oil prices since 2002. But with credit markets frozen the world over and Gulf central banks actively intervening to ease tensions in the Arab Peninsula, worries abound that Saudi banks could get caught up as well. The plunge reflected concerns among investors in the region that the financial crisis could drag on, particularly if the $700-billion bailout package could not realize its objectives, financial analysts said.
“The approval of a rescue package is not the answer to the worldwide credit squeeze, but action has to start somewhere to help underpin confidence. On the back of an approved package, financial institutions can start to look at the key problems — how to help homeowners with negative equity and the unwillingness of banks to lend to each other and the general market. Confidence should then return slowly to the markets, with a likely positive sentiment for the US dollar,” Basil M. Al-Ghalayini, CEO of the Jeddah-based BMG Financial Advisors, said.
He said across the world, particularly financial institutions are feeling the consequences of the credit squeeze, where mortgages play a major part in their business.
Al-Ghalayini added: “Globally, there is a lot of good value across a number of markets and it should be expected that global funds will start to buy over the next few months. The good news for Saudi Arabia is that the US dollar has been strengthening and this should help to lessen the impact of inflation and cut import costs, which is a positive dynamic. Generally, however, over the next few months, we should expect the markets to remain nervous until we see signs of the credit crunch diminishing.”
Wajdi Makhamreh, chief operating officer at the Sanabel International Holding, said, “Arab markets are coming more than any time before under the psychological impact of the global financial crisis.”
He added: “Investors apparently prefer to remain on the sidelines at this juncture as ambiguity continues to prevail regarding the extent to which Arab markets and financial institutions will be exposed to the fallouts of the financial crisis in the US and Europe.”
The move of the recession concerns from the US to Europe and the continuing fall of oil prices are putting fresh pressure on Arab markets, he said. “Nobody can foretell the direction of markets in the region because of lack of vision and absence of studies,” Makhamreh added.
Dubai’s main index fell 7.61 percent to 3551 points, its biggest one-day loss since March 2006 and its lowest close since April 2005, as investors fled the emirate’s stricken property sector.
Shares in Emaar Properties and Union Properties both fell 10.7 percent and 11.5 percent respectively. Construction firm Arabtec lost nearly 15 percent, its biggest one-day fall since May 2006.
The Abu Dhabi benchmark ended 5.61 percent lower, its largest one-day fall since January. The Muscat benchmark plunged almost 7 percent, its biggest single-day loss since January, with Bank Muscat and National Bank of Oman among the worst performing stocks.
In Qatar, the main index slid more than 4 percent as worries about the health of the global economy intensified an ongoing foreign sell-off. The index closed 4.49 percent lower at 8,275 points.
Kuwait’s main index ended 3.45 percent down, led by bank stocks and shares in Mobile Telecommunications Co. (Zain), which fell 7.35 percent, its largest one-day drop since August 2005.
Stocks slumped throughout Asia and Latin America, with trading halted on both the Brazilian and Russian markets because of steep plunges in stock prices.
The Dow Jones Industrial Average fell as much as 800 points during the session, slipping below the key psychological level of 10,000 for the first time since 2004.
Just after the closing bell, the blue-chip index was down 340.49 points (3.30 percent) at 9,984.89. The Nasdaq composite skidded 84.43 points (4.34 percent) to 1,862.96 and the Standard & Poor’s 500 index lost 39.78 points (3.62 percent) to a preliminary close of 1,059.45.
In Europe, the pan-European FTSEurofirst 300 index fell 7.75 percent to close at 1,004.90 points, its biggest percentage fall ever and eclipsing the 6.3 percent fall suffered on Sept. 11, 2001.
Asian stocks dropped overnight by about 5 percent and the yen surged to a two-year high against the euro.
Japan’s Nikkei share average slumped 4.25 percent to mark its lowest close since February 2004. MSCI’s index of Asia-Pacific stocks outside Japan slid 6.6 percent to the lowest since December 2005.
“Globally we have a troubling combination of events where mounting evidence of a slowdown in the US and Europe is aggravating the already serious financial crisis. Stock markets are tumbling virtually everywhere and credit markets remain frozen,” Howard Handy, general manager and chief economist of Samba Financial Group, said.
Looking ahead, he said some encouragement should be taken from the increased activism of the authorities worldwide including the passage of legislation in the US to tackle the problem of mortgage-backed securities.
Handy added: “Attention is now turning to the concerns with bank claims in the US and Europe. Though actions to address this issue have so far been on a case-by-case basis by individual countries, the support for a broader collective response by the Europeans may well increase.”
Meantime, the likelihood of interest rate cuts by the US Fed and in Europe has increased with the possibility of coordinated action in the near future. Such a move could give a psychological boost to the markets, Handy said.
The US dollar jumped to a 13-month high against the euro and the yen rallied broadly. The dollar rose against a basket of major currencies, with the US Dollar Index rose 0.65 percent at 81.439.
The euro fell 1.87 percent at $1.3511, and against the yen, the dollar fell 4.31 percent at 100.76. Fears of a global slowdown hammered prices for industrial metals, with benchmark copper tumbling almost 8 percent, and aluminum and zinc prices falling by almost 5 percent.
Crude oil prices fell below $90 a barrel to an eight-month low on fears of a global slowdown, before paring losses. Gold futures jumped more than 5 percent and the yen soared across the board amid heavy selling of riskier positions.
Spot gold prices rose $23.60 to $858.40 an ounce.
Oil dropped more than 6 percent to below $88 a barrel yesterday. US crude settled down $6.07 at $87.81 a barrel after hitting an eight-month low of $87.56. London Brent crude fell $6.57 to settle at $83.68 a barrel.
Prices have dropped by nearly 40 percent from a peak of $147.27 on July 11.
London Brent crude was down $3.86 at $86.39 a barrel.
— With input from agencies