JEDDAH: The continuing global financial crisis has hit stock markets in the Gulf Cooperation Council (GCC) badly, with heavy erosion of their market capitalization. The region’s largest markets witnessed the bulk of the decline as slowing world economic growth, falling crude oil prices and the prevailing financial crisis have cast a bearish spell.

According to the report of Kuwait-based Global Investment House (Global), the GCC stock markets have lost 47.5 percent of their value since the start of the year wiping off $538 billion from the market capitalization.

The Saudi bourse, the largest market in the GCC, has witnessed a decline of $254 billion of market capitalization despite 16 new listings and stood at $265 billion on Nov. 16, compared to $519 billion at the start of the year.

The Tadawul All-Share Index (TASI) closed on Wednesday at 4,880.44 points compared to 11,038.66 points at the end of 2007. It was the first time the Saudi benchmark broke the psychological 5,000-point-barrier downward in 56 months, analysts said. The index is down 6,158.22 points or 55.79 percent so far this year. The stock markets in the UAE and Kuwait have suffered $141 billion and $101 billion loss of their capitalization respectively.

Though the subprime mortgage crisis came to the fore in 2007, the real effect of the crisis was felt when Lehman Brothers filed for bankruptcy in September this year that was followed by bailouts of other major financial firms. The uncertainty and intensifying of the credit crunch made investors exit the equity markets leading to large falls the world over.

Credit crunch was accompanied by fears of world economic slowdown, sharp decline in crude oil prices since reaching an all-time high in July and panic selling by investors that caught the GCC markets in the cycle which has led to losses of $373 billion since the start of October.

Crude futures had Thursday tumbled under $50 a barrel for the first time since early 2005, as plunging equities and weak US economic data sparked fresh concern that a global recession could ravage energy demand. Oil prices have plunged two-thirds since striking record highs of above $147 in July, when fears of supply disruptions had helped to send them rocketing.

“I believe regional markets are still captive of lack of confidence, panic and pressures due to the spillovers from the world markets,” Wajdi Makhamreh, chief operating officer at the Amman-based Sanabel International Holding, said.

“I think the psychological situation has been aggravated by rapidly falling crude prices and the feeling of investors that the governments are unable to liquidate their surplus petrodollars invested in the West,” he added. Makhamreh believes that “when the dust of the world economic turmoil subsides, Arab countries will find it plausible to divert their investments in the West to the Arab world, where the risk could turn out to be lesser.”

Though Saudi insurance and multi-investment sectors registered massive falls of 70.4 percent and 62.1 percent respectively so far, the heavyweights of the market — banking and petrochemical sectors with a combined market capitalization of 59.2 percent — accounted for the bulk of loss in capitalization, the Global said in its report yesterday.

The petrochemical industry lost 63.7 percent while the banking sector lost 47.0 percent so far this year. The telecommunications sector, the third largest constituent, accounting for 14.2 percent of the total market capitalization, witnessed a decline of 26.1 percent. The Saudi market has lost $122 billion or 31.5 percent of its capitalization since the start of October.

The Saudi Basic Industries Corp. (SABIC), the largest company in GCC, lost $86 billion of its capitalization during the year while losing $40 billion since October.

Al-Rajhi Bank lost $20 billion of its capitalization so far this year and $7.6 billion since October, and Samba Financial Group lost $13 billion of its capitalization while losing $2 billion since the start of October.

The Kuwait market also is a victim of the current crisis. The Kuwait stock market, dominated by banks and investment companies, saw a massive decline particularly in the wake of the Gulf Bank incident that provoked the government to intervene.

The Kuwait stock market has lost $101 billion or 47.8 percent of its capitalization since the start of the year and $89 billion since October. Also, the National Bank of Kuwait witnessed a decline in its capitalization by $7.4 billion.

The combined capitalization of the Dubai and Abu Dhabi stock exchanges declined by $141 billion. Both the stock markets have lost a combined $104 billion of their capitalization since October. The Bahraini market witnessed the least decline of $3.6 billion in its market capitalization.

The Qatari and Omani indices witnessed a decline of $31 billion and $7 billion of their market capitalization.

— With input from Abdul Jalil Mustafa