JEDDAH/LONDON: The threat of a painful global recession sent stock markets reeling yesterday, with investors unnerved by new warnings about the costs of the worldwide financial crisis.
The White House announced yesterday that a summit of world leaders on the global financial crisis will be held in Washington next month, amid warnings that widespread recession is now inevitable.
After being urged at weekend talks with French President Nicolas Sarkozy to hold a summit to review the whole global financial architecture, US President George’s Bush office said the heads of 20 rich and emerging countries would gather in Washington on Nov. 15.
Across the globe, from Tokyo, Hong Kong, Mumbai and Shanghai, to Frankfurt, London, Paris and New York, traders’ screens were awash with red.
Share prices on Wall Street fell hard in early deals, with the Dow Jones Industrial Average down 3.58 percent at 8,710.68 at mid-day, while the tech-heavy Nasdaq was 1.79 percent in negative territory at 1,166.24.
European stock markets suffered big losses yesterday, the London FTSE 100 index shedding 4.46 percent with traders unnerved by prospects for a worldwide recession. The FTSE closed at 4,040.89 points. In Paris, the CAC-40 plunged 5.10 percent to 3,298.18 while in Frankfurt the DAX fell 4.46 percent to 4,571.07.
Elsewhere in Europe, there were declines yesterday of 5.3 percent in Amsterdam, 6.14 percent in Brussels, 4.20 percent on the Swiss Market Index and 3.57 percent in Milan.
“Those who thought that global equity markets, especially in the US and Europe, have been oversold were proven wrong once again. Concerns about the real economies and recession are beginning to unfold and the debate will gradually include the gloomy picture of corporate earnings,” said one financial expert based in the Kingdom.
“The slowdown in economic growth will be with us for sometime,” he said. “The big talk will center around two other particular areas of the shadow banking system: Hedge funds and private equity funds. Highly leveraged hedge funds are beginning to witness investment liquidations and this will naturally affect markets.”
In earlier Asian trade, Tokyo nosedived by 6.79 percent by the close and Hong Kong lost 5.2 percent.
Indian shares fell 4.81 percent in a broad sell-off, erasing the previous session’s gains and helping knock the rupee to a record low against the dollar.
The 30-share BSE index dropped 513.49 points to 10,169.90, with all but two components falling. It was the index’s second-weakest close this year, ahead only of Friday’s 28-month closing low of 9,975.35.
The 50-share NSE index fell 5.25 percent to 3,065.15, its lowest close since July 25, 2006. The BSE 30-share index is down by half in 2008, with foreigners selling a net of $12.2 billion in stocks so far this year, almost reversing 2007’s record net buying of $17.4 billion.
That selling has weakened the rupee, which hit a record low of 49.50 per dollar yesterday.
Arab stock markets also edged lower yesterday following two days of gains.
The Saudi bourse, the largest in the Arab world, closed its week sharply lower, with the Tadawul All-Share Index (TASI) giving up 3.7 percent to 6,160.80 points. The decline was led by a 5.3 drop in petrochemicals and a 3.7 percent dip in banking.
Over SR5.35 billion worth of shares changed hands yesterday.
The TASI slumped 10.2 percent this week and is down 44.2 percent since the start of the year.
The Saudi Arabian Monetary Agency (SAMA) poured between $2 billion and $3 billion in deposits into the banking system on Tuesday to ease liquidity pressures, its first direct injection of US dollars in a decade.
“SAMA’s liquidity injections were motivated by an interest to bring down the cost of funding which has increased over the past few months by a considerable amount. The indirect significance of the move is to reassure the market that the central bank will intervene prudently when needed. We need to see how the market will react to the riyal injections,” said John Sfakianakis, chief economist at the Saudi British Bank (SABB). “The dollar injections have been welcomed by the market, hence riyal-US dollar spot rates have reached a near equilibrium. I expect SAMA to intervene in the future as per market dynamics,” he added.
The Kuwait Stock Exchange declined to an 18-month low. The KSE Index, which had risen on Tuesday following eight sessions in the red, closed 2.15 percent down at 10,804.40 points, the lowest level since May 1, 2007.
The Dubai Financial Market slumped 4.24 percent to close at 3,209.20 points after rising for two days. Real estate developer and market leader Emaar shed 5.3 percent while major construction firm Arabtec declined 6.8 percent.
The Abu Dhabi Securities Exchange finished down 1.6 percent at 3,595.24 points as the key real estate sector dropped 5.6 percent. The smaller Muscat Securities Market closed down 1.5 percent while the Bahrain Stock Exchange was down 0.5 percent.
In Cairo, Egypt’s CASE-30 stock index dropped 8.85 percent to close at 5,112 points.
Spiraling stocks also sent shockwaves through currency markets as dealers priced in interest rate cuts in Europe to help fix flagging economies.
The euro fell to the lowest level for almost two years against the dollar, while the British pound plunged to a five-year trough after Bank of England Gov. Mervyn King warned that Britain was likely entering a recession. At about 0420 GMT, the European single currency touched a low of 1.2743 dollars - the weakest since Nov. 7, 2006. In London morning trading, the euro stood at 1.2897 dollars. Against the Japanese currency, the dollar fell to 99.24 yen from 100.31 yen late in New York on Tuesday.
Oil fell to a new 16-month low below $70 a barrel yesterday. US crude for December delivery was down $4.24 at $67.94 by 1510 GMT. It touched a session low of $67.50, its lowest since June 2007. London Brent crude was down $3.89 at $65.83.
— With input from agencies
