JEDDAH/LONDON: Global stock markets staged spectacular gains yesterday as governments pumped billions of dollars into banks crippled by the credit crunch, coaxing newly confident investors into buying shares. The stocks soared in their biggest one-day advance in at least 20 years.
Gulf markets also rallied on revived investor faith in government measures to boost financial stability, but analysts said it was too early to call an end to weeks of losses on regional bourses.
In the Gulf, Qatar took the most dramatic step yet, saying its sovereign wealth fund will spend $5.3 billion to buy up to 20 percent of listed banks’ capital.
That sent stocks higher in Qatar and Dubai, where the United Arab Emirates vowed a day earlier to guarantee bank deposits and interbank lending for three years, including those of foreign banks with core operations in the country.
“We were on the brink of an abyss,” said Abdul Nasser Al-Saadi, his eyes fixed on the screens of the Dubai Financial Market, describing the drop in the market of this booming Gulf city state over the past days, before it made a spectacular recovery yesterday.
Al-Saadi, in his 60s, is one of many small investors who saw their savings evaporate in just a few days. He described himself as a “permanent” in the bourse since he retired few years ago and invested all his pension of nearly $100,000 in the stock market.
He refused to disclose the value of the losses he incurred since the market took a free fall tracking global bourses. Instead, he expressed faith in the local economy. “Our economy is solid and our leaders have vision,” he said.
The Dubai Financial Market Index had shed 26 percent since last week.
The Saudi stock market closed up 9.47 percent, its best finish since Oct. 7. The Tadawul All-Share Index (TASI) closed 550.62 points higher at 6,365.23. The market turnover was over SR8 billion yesterday.
Analysts also credited Saudi gains to a rare repo rate cut by the Kingdom’s central bank, Saudi Arabian Monetary Agency (SAMA), on Sunday.
“Measures taken by SAMA and other regional central banks to safeguard financial soundness fueled the rally in Saudi Arabia and other Gulf markets,” John Sfakianakis, chief economist at SABB (The Saudi British Bank), said, adding that the repo cut in Saudi Arabia was the first since 2004. “In what is probably a more significant move, the reserve requirement cut was the first since 1980. It is early to forecast a change in market direction in regional markets.”
“SAMA’s moves restored investors’ confidence that authorities are finally doing something and, the right thing, to help the bourse,” said Abdulhamid Al-Amri, a member of the Saudi Economic Association, a semi-official thinktank based in Riyadh. Al-Amri said a raft of IPOs (initial public offerings) approved by the bourse regulator over the past 18 months, which coincided with steps by SAMA that have tightened liquidity, had been “choking the market.”
Saudi Shoura Council members, meanwhile, urged the Finance Ministry and SAMA to give the public a clear picture about the global crisis in order to reassure Saudis and residents. They also advised the council to conduct a study on the crisis and present its proposals to higher authorities.
The Dubai index ended with its biggest one-day gain ever, jumping 10.53 percent as four stocks hit the 15-percent cap on daily gains. In Qatar, the index rose 8.45 percent.
Despite the positive session, some analysts were unconvinced that the worst of the market meltdown was over. “Nobody knows if this is the beginning or the end,” said Amro Motasim, chief trader at Ahli Bank in Doha. “It may (run for) one or two days. Nothing has changed. The situation is bad, you’ve foreign institutions that are still selling. This might end up being a dead cat bounce.”
Motasim said the Qatari decision to buy listed banks’ capital was both good and bad for the market. “They’re injecting liquidity which is good, but the long-term effect is it will create share dilution,” he said, noting that the move also diverted investment away from other sectors, such as services and insurance, which may also need funds.
The positive sentiment buoyed other markets. The Abu Dhabi index rose 6.92 percent, Oman was up 5.18 percent and Bahrain edged up 0.82 percent. Kuwait was the lone decliner yesterday, slipping 0.26 percent.
“I think, overall, we may be leaving the bottom of the market,” said Hamood Abdulla Al-Yasi, general manager at Emirates International Securities.
Orion senior market analyst Nadine Wehbe said yesterday’s market gains are encouraging, indicating that investor sentiment has turned. “The sentiment was always the problem, not the fundamentals,” she said. “But we need it to be more solid. We’re seeing day traders coming back, we didn’t see the mid- and long-term investors. We need to see them going back into the market.”
The Dow Jones Industrial Average rose 579.52 points, or 6.86 percent, at 9,030.71. The Standard & Poor’s 500 Index was up 64.17 points, or 7.14 percent, at 963.39. The Nasdaq Composite Index was up 120.26 points, or 7.29 percent, at 1,769.77.
Most European markets closed with double-digit increases. The London FTSE 100 index of leading shares jumped 8.26 percent to close at 4,256.90 while in Paris the CAC-40 rose 11.18 percent —- its largest ever one-day gain —- to 3,531.50. The Frankfurt DAX soared 11.40 percent to 5,062.45. There were gains of 11.39 percent on the Swiss Market Index, 11.49 percent in Milan and 10.65 percent in Madrid. Bucking the trend was Moscow, where Russia’s two stock exchanges closed down more than four percent.
Asian stocks also posted heavy gains after a week of big losses, with Hong Kong up more than 10 percent. Tokyo, Asia’s largest stock market, was shut for a public holiday after slumping 24 percent last week. The dollar rose against a basket of major currencies, with the US Dollar Index up 0.14 percent at 81.892. Against the yen, the dollar rose 0.41 percent at 101.05.
US light sweet crude oil rose $3.66 to $81.36 a barrel. Spot gold prices fell $8.80 to $838.60 an ounce.
— With input from agencies
