Investors should reduce their holdings of equities in western markets because the US government's massive bailout plan is not enough to prevent a "nasty and long-lasting" recession, HSBC analysts have warned. They have slashed their recommendations on equities from "neutral" to "underweight", reflecting the market turmoil engulfing the world in the past week, which has seen billions of dollars wiped off equities in the US and elsewhere.
In a note called "Armageddon Postponed", the analysts wrote: "Policy makers have probably put a floor on the severity of the recession. That doesn't mean that the developed world won't have a recession, and probably a pretty nasty and long-lasting one at that." The report was published as opposition grew to the US$700 billion (Dh2.57 trillion) scheme. The Dow Jones opened up last night, led by technology stocks that investors thought would boost growth if they benefited from the bailout, because of the possibly looser credit conditions.
Marc Pado, a market strategist at Cantor Fitzgerald in San Francisco, said: "Lending had ground to a halt in the credit markets. If they can free up lending as a result of this package, I think that will spur business. If you want to capitalise on a recovery in the fourth quarter, you're going to go into growth stocks and that's in tech." Dell added four per cent and Microsoft climbed two per cent after valuations on computer companies in the Standard and Poor's 500 Index slid to the lowest level compared with earnings since Bloomberg began tracking the data.
And troubled US corporations should not look to the Gulf for "white knights" to ride to the rescue, a leading manager of a Gulf sovereign wealth fund (SWF) said yesterday. The Kuwait Investment Authority (KIA) was eyeing investment opportunities abroad but was not in the business of bailing out struggling foreign banks, said Bader al Saad, the managing director of the SWF. Facing criticism in the Gulf state's parliament for pouring US$5bn in January into Citigroup and Merrill Lynch - which has since been bought by Bank of America - Mr Saad said the fund was seeking to benefit from lower asset prices due to the global financial crisis.
"Disasters in the United States, some European countries or Asian countries create investment opportunities in the real estate sector, the financial industry or other sectors," he said in a rare television interview on Al Arabiya. "We are not responsible for saving foreign banks. This is the duty of the central banks in these countries. We have social and economic responsibilities towards our own country."
Despite the KIA's apparent detachment from the West, Gulf markets continued their relentless downwards spiral yesterday in synch with the developed world, after the UAE central bank's credit line and the US government bailout failed to reassure investors. The GCC is now on course to wipe out all the gains made on Saturday and Sunday, following the brief euphoria that accompanied the US government's planned bailout of investment banks' toxic securities.
Monday's announcement by the UAE that it would provide Dh50bn of loans to the country's banks produced little reaction in the markets - the Dubai Financial Market (DFM) lost 3.56 per cent, while the Abu Dhabi Securities Exchange dropped 2.84 per cent. With the exception of Doha, which gained 0.08 per cent, the rest of the GCC was down. Kuwait fell 2.04 per cent, Muscat dropped 1.21 per cent and Bahrain suffered a 1.48 per cent slide.
A drop in value of this size for the DFM would ordinarily be regarded as significant, but this was only the second-largest one-day fall this month. The London FTSE index closed down 2.13 per cent, but it was the early morning performances of Asia that sent the GCC down - the Hong Kong market shed 3.87 per cent and Singapore lost 2.66 per cent. As a result, all eyes were on New York last night, because of the influence that will have on the first Asian openers - and then on the GCC.
@Email:afoxwell@thenational.ae
