JEDDAH: Growing fears of recession sent share and oil prices plummeting yesterday as markets shrugged off new moves to protect shell-shocked economies and a G-7 pledge to stabilize the financial system.
Wall Street shares, however, rebounded from an opening slide, helping European markets trim their losses late in the day after Asian markets took another drubbing on global recession fears.
The Dow Jones Industrial Average was up 1.09 percent in midday trading at 8,470.55 points while the tech-heavy Nasdaq gained 0.51 percent to 1,560.55.
The London FTSE index, which earlier in the day had plunged more than 5 percent, escaped with a loss of just 0.79 percent at 3,852.59 points while in Paris the CAC-40 came back from a decline of more than 6 percent to close down 3.96 percent at 3,067.35 points.
In Frankfurt, the DAX gained 0.91 percent at 4,334.64 points, powered by a jump of more than 150 percent in VW shares that came after Porsche said it had increased its stake in the biggest European carmaker.
“The further slide in markets is largely driven by increasing evidence of recession in major industrial countries. What is most troubling is that the economic downturn is reaching these countries almost simultaneously and comes on top of the financial crisis. This is the main reason why the consequences are being felt so quickly throughout the world economy,” Howard Handy, general manager and chief economist of Samba Financial Group, said.
He said it is clear that this process will take some time to run its course. Meanwhile, there is certainly comfort to be had from the policy actions of the governments of the G-7 and elsewhere. “They have demonstrated their readiness to do what it takes, not only through conventional policy easing but through direct support to financial institutions (capital infusions, guarantees, and asset purchases) on an unprecedented scale. There is a clear sense of a resolve to do more as and when it becomes necessary. Another round of coordinated interest rate cuts, for example, seems increasingly likely,” Handy said.
Oil prices sank to $59 yesterday, hitting 17-month lows on worries that a global recession will sap energy demand and as the US currency strengthened against the euro. In early trade yesterday, Brent North Sea crude for December delivery plummeted to $59.02 per barrel, its lowest point since February 2007.
New York’s main contract, light sweet crude for December delivery, tumbled to $61.30 a barrel, a level last seen in May 2007.
The euro sank under $1.24 in early London trading, hitting the lowest point for more than two years on fears of recession and the withdrawal of funds into the dollar, dealers said.
In Japan, the Nikkei average slid 6.36 percent to its lowest in 26 years, as the yen rose on the dollar. The Nikkei shed 486.18 points to close at 7,162.90, its lowest close since October 1982.
In Hong Kong, the Hang Seng Index closed down 1,602.54 points at 11,015.84, its lowest level since mid-2004 and taking its losses so far this year to 60 percent.
In Mumbai, the 30-Share Index fell below 8,000 points to its lowest level since October 2005 before recovering some ground to end down 2.2 percent.
The partially convertible rupee, whose fortunes are closely tied to foreign flows in and out of the stock markets, slid to a record low of 50.24 to the dollar, even though traders reported central bank intervention to prop it up. The currency could fall to 52.5 to 54.00 per dollar by the end of the year as capital is drained from the country and pressure builds on the trade deficit from falling exports, Kotak Mahindra Bank said.
Traders on the Kuwait stock market walked out again after emergency financial measures by Kuwaiti authorities failed to prevent fresh falls in prices as stocks sank on all Gulf bourses.
Shares in Gulf Bank, Kuwait’s second biggest financial group, remained suspended in the wake of losses on derivatives deals, which prompted the central bank on Sunday to guarantee deposits and send in a supervisor.
Brokers stormed off the floor of the stock exchange for the third consecutive trading session, urging the government to intervene to stop the price declines.
The trend on the Kuwait market, the second biggest bourse in Arab world, was mirrored on other Gulf markets. The finance minister and the head of Kuwait Investment Authority, the emirate’s sovereign wealth fund, were quoted by newspapers yesterday as conceding that Kuwaiti foreign investments have taken some losses.
Handy of Samba Financial Group said: “The Gulf countries are being affected in various ways from this turmoil. But here too the authorities have shown both speed and determination in taking pragmatic actions to address the new challenges at an early stage. They are, of course, well-positioned to do this, given the large foreign asset holdings and strong fiscal positions in the GCC (Gulf Cooperation Council) countries. Beyond that, it is encouraging that the finance ministers and governors of the GCC at their meeting in Riyadh on Saturday underlined their determination to act in close consultation and in a coordinated way. This sends a very positive signal and should be reassuring to market participants.”
The Jeddah-based National Commercial Bank (NCB) said in its weekly report that capital markets continue to lose value unabatedly, reflecting a worldwide fear of a global recession, as the cycle of deleveraging gains more momentum. The MSCI index tracking world equities is heading for the worst year on record, falling by a significant 47.1 percent, amid the mounting credit losses of $660 billion. To date, more than $10 trillion had been lost from the market capitalization of equities in October, which accounts for around one-third of the total value erased from world equities in 2008. During this month, the list of concerns was magnified, to include not only the banks and companies which would fail, but also which countries could fail, with the list of countries facing problems growing to include as geographically distant as Iceland and Argentina.
Kuwait is estimated to have invested more than $260 billion overseas, mainly in the United States and Europe. Officials were quoted by the media as saying losses were minimal. Kuwait’s KSE index closed 2.2 percent lower at 9,889.30 points, dropping below the 10,000-point mark for the first time since March last year.
The Saudi stock market continued its downward march. The Tadawul All-Share Index (TASI) closed 192.89 points or 3.49 percent down at 5,338.68. The index is down 51.64 percent so far this year. The stock market turnover was over SR5 billion yesterday compared to SR5.56 billion on Sunday.
“Saudi Arabia has already felt the pinch of the financial debacle and many Saudi and Gulf investors suffered heavy losses after some American and Gulf banks used their funds to buy risky mortgage bonds just before the subprime mortgage crisis erupted in the US. However, it is still not clear how much will be the total loss caused to Gulf banks by the US economic crisis,” Faisal H. Alsayrafi, managing director and CEO of the Jeddah-based Financial Transaction House (FTH), said.
Following turbulence on a global scale, the Saudi stock market has been strongly affected this week. Although the market is highly oversold, negative sentiment prevails, Alsayrafi said, adding the lack of investor confidence is pushing the index further down, regardless of earning reports that were released over the last week.
The Dubai Financial Market closed 5.8 percent lower at 2,922.66 points, sinking below the 3,000-point mark for the first time in more than three and a half years. Fellow UAE market, the Abu Dhabi Securities Exchange, declined two percent to 3,321.52 points as the key real estate sector dropped 5.6 percent and banks fell by 3.1 percent.
The Doha Securities Market dropped 1.5 percent to finish at 6,792.40 points, while the small Muscat Securities Market ended down 7.45 percent. Bahrain Stock Exchange shed 2.9 percent.
— With input from agencies
