The GCC will continue to be sheltered from a global recession despite predictions of financial gloom, according to Fabio Scacciavillani, an economist at Dubai International Financial Centre. UAE banks had not invested heavily in exotic derivatives and subprime mortgages, said Mr Scacciavillani, adding he did not expect major infrastructure projects to be adversely affected. "The exposure is minimal," he said.
Walid el Hayeck, the director of asset management at the National Investor, said that while some potential initial public offerings by companies may be delayed because of adverse market conditions, he did not see investment banks in the region suffering a major loss of income as a result. Yesterday was quickly dubbed "Meltdown Monday" or "Manic Monday" because of the Chapter 11 bankruptcy filing by Lehman Brothers and the buyout of Merrill Lynch by Bank of America. Markets in the Far East were the first to react, with indexes tumbling more than 2.5 per cent in Australia, Singapore, the Philippines and Taiwan.
Out of all the markets, the Doha was hammered the most, suffering a 7.06 per cent drop; however, the Saudi Tadawul, a much bigger market, collapsed by 6.94 per cent and Kuwait lost 3.8 per cent. Mubadala Development Company, a government-owned investment fund, dismissed any hope of Gulf bailouts on Wall Street. "Mubadala is not looking at any of these financial players that are going through difficulties," said Waleed al Muhairi, the company's chief operating officer. "There is a good amount of volatility and it is not the best time to invest."
When the markets opened in Europe, banking stocks were hammered. It seemed like every exchange was trying to outdo the others, with shares almost in freefall at times. On the London Stock Exchange, the mortgage lender HBOS lost one third of its value, later recovering some value to end down by one quarter. It was followed downwards by Royal Bank of Scotland and Barclays, which each lost more than 10 per cent. Germany's DAX fell 300 points before rallying, while the French CAC-40 was down 250 points before a slight recovery.
The Dubai Financial Market had already plunged nine per cent and it looked at one stage as though it may hit a three-year low. However, the market rallied to close just 1.7 per cent below its opening value of 4473.68, settling at 4044.27. The Dubai International Financial Exchange hit an all-time low, with its leading share, DP World, falling 19 per cent. "Bad news all over the world is contagious, but it will encourage investors to come back to this region where there is potential," said Yazan Abdeen, an equity portfolio manager at ING bank.
The GCC was well insulated from the turmoil because of the large cash pile that had been built up, he said. Other analysts agreed, even predicting that the market had bottomed out. "It's going up a little, but I think because the prices have reached very low," said Mohammed Kamel, a senior technical analyst at Commercial International Brokerage Company. "Investors were not expecting [the rapid decline]. I think it will go up from here because the prices are already low, and they are very undervalued. I think here we've found bottom, inshallah."
Day traders on the Abu Dhabi Securities Exchange said that Wall Street's fallout had nothing to do with them. "There is no reason why this is happening. That's why everybody's confused. The market is going down - it's not going down, it's diving down," said Eyad Hagag, who was confident that the implosion of America's third- and fourth-largest investment banks had nothing to do with the precipitous equity prices. "Since when is the local market connected to the American market?"
Traders are now waiting to get back into the market. "Now, still today, I'm not buying anything, so I watched the market go down. Just watching only," said Abdul Jaleel, another day trader. "Inshallah, after two days it will go up. The situation is that the market is down. More people can buy now - buy now and after Ramadan it will increase to a very good price." Meanwhile, the Central Bank of the UAE said yesterday that foreign cash taken out of the country had now reached 90 per cent. The central bank's board of directors said it discussed the liquidity issue of the country's banking system at its meeting yesterday but did not give any details.
"The board instructed continuation of monitoring the situation closely, and was also assured that the central bank has the necessary tools to deal with the situation if so required," it said in a statement. Maybe it was just another mundane Monday, after all. As the European markets were getting ready to close, traders on Wall Street were preparing to deliver their verdict. * Additional reporting by Matt Bradley and Sara Hamdan
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