JEDDAH/NEW YORK: Investors took a dim view of paltry European efforts to shore up unsettled markets, sending US and European equity stocks lower yesterday.
The US dollar and the yen fell but gold prices climbed, with an all-time high set in euro terms, Reuters data showed, as lingering fears over the outlook for the financial sector spurred buying. Oil prices rose yesterday.
Stock markets also plunged across the Gulf yesterday as panic over the global financial crisis gripped investors, wiping billions of dollars off the value of shares.
The market in Saudi Arabia sank by over 7 percent while the biggest percentage loss was reported in Egypt, where the key index plummeted by more than 16 percent to its lowest level in two years.
Four Gulf states tried to lend verbal support to faltering stock markets yesterday, saying their financial institutions were sound despite the global credit crisis.
Officials from Saudi Arabia, Kuwait, Qatar and Oman moved to reassure investors that the decline in regional markets was merely temporary and said their economies were strong.
“The financial situation in the country is safe and sound and liquidity at banks is available and exceeds billions,” Kuwaiti Deputy Prime Minister and Minister of State for Cabinet Affairs Faisal Al-Hajji told state news agency KUNA.
Kuwait’s Commerce and Industry Minister Ahmad Baqer also spoke out, saying the market decline was due to global panic and urged companies to buy back shares to support the market.
Earlier, a Kuwait newspaper quoted Sheikh Salem Abdul-Aziz Al-Sabah, the country’s central bank governor, as saying that local banks were not affected at all by the crisis.
In Saudi Arabia, central bank economist Fadi Alajaji admitted the Kingdom faced difficulty in managing liquidity but said Saudi banks were unlikely to go bankrupt or collapse.
He also pinned the market retreat to a crisis of investor confidence.
In all, the seven stock markets in the Gulf have shed about $150 billion of their capitalization in the past three days alone.
The Tadawul All-Share Index (TASI) initially crashed more than 570 points, or 8.6 percent, but later closed 7.03 percent or 472.88 points down at 6,253.72 points.
It had tumbled a whopping 9.81 percent on Monday. The stock market turnover, however, increased to SR5.24 billion yesterday compared to SR1.39 billion on Monday.
“The Saudi market, which has a large proportion of retail investors, has clearly been spooked by the global sell-off,” Howard Handy, general manager and chief economist of Samba Financial Group, said. He said investors have also been unsettled by generally lackluster third quarter banking results, with some large institutions posting reduced profits.
Almost all Saudi banks declared in announcements posted on the TASI website that they were not involved in any way in the global subprime mortgage crisis and are not expected to be affected.
But the move apparently failed to lift investor sentiment from rock bottom.
Handy said from a regional perspective, Saudi Arabia does not appear particularly expensive given an average P/E ratio of 13.9 yesterday. This compares to Jordan at 21.6, Lebanon at 17.9, and Bahrain at 18.9 (though the UAE has sunk to 10.5).
Globally, P/E ratios vary significantly. Yesterday, the Dow was at 12.3, the S&P 500 at 20.6, the FTSE at 8.7, the Hang Seng at 10.2 and Brazil at 10.4, he said.
“Yet it is difficult to describe the Saudi market as ‘overvalued’, since the Kingdom’s economic fundamentals appear much stronger than those of many other countries,” Handy said.
He added: “The Kingdom contains the world’s largest oil reserves, and is the only country with significant spare capacity. It has also net foreign assets of $400 billion, or around 80 percent of gross domestic product (GDP). These two factors should allow the government to maintain its current pace of spending even if oil prices soften appreciably. Thus we expect to see continued real growth of at least 5 percent a year over the medium term.
“Demand for housing is likely to remain robust and demand for office space in Riyadh is expected to increase by 5 percent a year for the next three years at least. The housing market is further supported by demographic factors, such as a strong rate of population growth (around 3 percent), a young profile (65 percent under the age of 30), and the imminent approval of a mortgage law.”
Turki Fadaak, chairman of the financial papers committee at the Jeddah Chamber of Commerce and Industry, attributed the mental condition of dealers to the dramatic fall of Saudi bourse. He believed that global financial crisis would not have any direct impact on the Kingdom’s market “because governments are major players in the Gulf capital markets.”
Abdul Hameed Al-Amri, member of Saudi Economic Society, contradicted the view of Fadaak and said US financial crisis had a big impact on global markets. He also blamed some resolutions taken by Saudi Arabian Monetary Agency and Capital Market Authority for the big fall.
Other stock markets in the Gulf and Egypt were also down sharply.
Dubai Financial Market dropped 5.14 percent to 3,369.15 points, its lowest level in more than two years.
The Abu Dhabi Securities Exchange, the other bourse in the United Arab Emirates, closed down 4.6 percent at 3,395.31 points, mainly because of a sharp drop in real estate.
The Kuwait Stock Exchange, the second largest Arab bourse, slumped 2.6 percent to a 16-month low of 11,635.90, apparently after the government rejected calls by lawmakers to intervene in the market.
The lawyer of a Kuwaiti stock trader says he has filed suit to compel the government to temporarily close the slipping stock exchange to curb losses.
Attorney Adel Al-Abdul Hadi says a court will hear broker Khaled Al-Awadi’s case against the prime minister and the stock exchange manager tomorrow. He says the lawsuit was filed yesterday and more plaintiffs could join his client.
The smaller Muscat Securities Market shed 7.3 percent while the Doha Securities Market was down just 1.55 percent.
Egypt’s key CASE-30 stock index dropped by 16.4 percent from 7,059 to 5,903 points after trading opened for the first time since September 29 following a string of public holidays.
The CASE-30 is now at its lowest point since September 2006, after almost doubling in value over the last four years to reach a high of 12,000 points in May.
European shares closed down only modestly slightly, but financial shares on both sides of the Atlantic skidded. with European shares falling heavily on disappointment about the lack of a coordinated push by the world’s leading central banks to cut interest rates.
Before 1 p.m., the Dow Jones Industrial Average was down 146.71 points, or 1.47 percent, at 9,808.79. The Standard & Poor’s 500 Index was down 18.10 points, or 1.71 percent, at 1,038.79. The Nasdaq Composite Index was down 36.83 points, or 1.98 percent, at 1,826.13.
The FTSEurofirst 300 index of top European shares ended 0.14 percent lower at 1,003.51 points, a day after the index posted its worst one-day percentage fall on record.
Investors had dumped risky assets in currency markets in recent days, which sent the dollar to a 13-month peak against the euro and sparking broad gains in the yen. But the dollar fell against a basket of major currencies, with the US Dollar Index off 0.62 percent at 81.172. Against the yen, the dollar rose 0.28 percent at 102.10.
In euro terms, gold rose to a new record of 654.22 euros an ounce, up from 635.29 euros late on Monday.
In New York, spot gold prices rose $13.75 to $871.20 an ounce.
Overnight in Asia, stocks outside Japan rose for the first time in four days. Japan’s Nikkei share average finished down 2.2 percent at a five-year low, but MSCI’s index of Asia-Pacific stocks outside of Japan rose 1.5 percent, rebounding from a low last seen in December 2005.
Oil prices rebounded yesterday after Libya called on crude producers to cut output to protect their incomes if the market continued trading at current levels. Crude oil futures have in recent days traded within a band of about $80-$95 a barrel, well off the record highs of $147 reached in July.
New York’s main contract, light sweet crude for delivery in November, jumped $2.22 to $90.03 a barrel in electronic deals yesterday, recovering from sharp falls suffered Monday. Brent North Sea crude for November gained $1.40 to $85.08 a barrel.
— With input from agencies
