KUWAIT CITY, 15 March 2006 — Stock markets in the Gulf region and Egypt suffered major losses yesterday, triggering angry protests in Kuwait and prompting some analysts to forecast a crash after a solid five-year upward run.
The market in Saudi Arabia, the largest in the Arab world, dropped sharply for the fourth consecutive day, reflecting what analysts said was a sharp correction across the region.
The value of Gulf bourses dropped yesterday to just under $1 trillion, down some $150 billion from their 2005 value and more than $250 billion below the peak.
The Saudi Tadawul All-Share Index (TASI) shed 4.74 percent to close below the 15,000-point psychological barrier for the first time this year at 14,900.04 points.
The TASI has so far lost 10.84 percent since the start of the year and a whooping 27.8 percent from its all-time high of 20,634.86 points reached on Feb. 25. It has shed 16.9 percent during the past four days.
“I think we are now at a serious turning point... It is certainly the beginning of a crash though the market is expected to resist at 12,200 points,” said Ali Dakkak, professor of economics at Jeddah-based King AbdulAziz University. “We need swift actions and decisions to restore confidence to investors,” a majority of whom are speculators who have been lured into the market by sharp price increases and handsome profits, Dakkak told AFP.
But Kuwaiti financial analyst Ali Al-Nimesh characterized the fall as a “long-term correction” rather than a crash. “It’s still early to call it a crash. The indices are expected to rebound slightly sometime soon, but this appears to be a long-term correction cycle. It may continue for two years,” Nimesh told AFP. He said he expected the Saudi market to lose between 50 percent and 60 percent of its peak before rebounding.
In Kuwait, investors staged a protest outside Parliament, urging MPs to intervene after the market registered its biggest single-day loss and closed at a six-month low. “We want a complete probe into what has happened in the market since last Wednesday,” when the index began to slide, demanded one investor. “Is our government weaker than those pirates?”
The Kuwait Stock Exchange Index finished down 3.7 percent or 382.90 points at 10,057.50 points, its lowest close since Sept. 14. It is now 12.1 percent below its 2005 close and down 16.6 percent from its all-time high of 12,054.70 set Feb. 7.
The Kuwait Investment Authority, the state investment arm, promised to inject cash into the market on Wednesday following a protest by hundreds of small investors after the index dropped 257.8 points. Stock markets also plunged in the United Arab Emirates, Bahrain and Qatar.
In Egypt, the Cairo stock market trimmed its losses to 6.62 percent after trading was stopped at in early afternoon when the main index lost 11.3 percent in early afternoon trade, its biggest single-day drop in five years.
The index was at 5,589 points compared with the close Monday of 6,296.
Analysts said a correction in the market was inevitable given the 148 percent gain in 2005 and the speculative bubble it fueled. “A correction was not only necessary but inevitable,” said Ahmed Hefnawi, analyst with investment bank EFG-Hermes. “There were people in Egypt that quit their jobs to play the stock market, today they will pay the price.”
Dakkak attributed the regional loss to action by Saudi dealers, who invest heavily in all Gulf stock markets, and have recently pulled out to cover losses back home.
“It is a chain reaction. Saudi investors have withdrawn much of their money from stock markets in the Middle East, including Egypt and Jordan, causing them to decline.”
Gulf markets have increased six to seven fold since 2001 due to abundant liquidity generated from a sharp rise in oil revenues. The upward trend and lucrative profits lured millions of small investors including women.
“Almost 60 percent of Saudi investors are small dealers. They depend mainly on speculation and whenever a decline happens they try to exit, causing the market to slide,” Saudi economist AbdulAziz Al-Daghestani said. “Recently it became like gambling and not investment in most Gulf markets. That’s why we are seeing the fast fall.”
