Gulf stock markets tumble in reaction to far-off shocks

Stock markets throughout the Gulf tumbled yesterday after major losses elsewhere in the world on Wednesday, but the regional impact was not as severe as some had feared. All GCC markets finished in the red, but none dropped more than 1 per cent. "There is a lot of talk about the double-dip recession" in the US, said Faisal Hassan, the head of research at Global Investment House in Kuwait. Couple those fears with slowing growth in China and falling oil prices, and it is easy to see why investors are concerned, Mr Hassan said.

At the same time, the minimal declines illustrated the latest trend, in which regional markets are not as closely correlated with global trends because institutional investors are no longer as active in the Gulf. "Now all you have is the local investor, who is a speculator and not really looking at the effects of the US market, the dollar or global markets," said Mohammed Ali Yasin, the chief executive of Shuaa Securities in Abu Dhabi.

In New York, the Dow Jones Industrial Average lost more than 2 per cent on Wednesday after the Federal Reserve issued a policy statement saying "the pace of recovery ? slowed in recent months". Asian markets reacted by falling for the third consecutive day. Oil prices dipped as well. Benchmark crude for September delivery was down 94 cents at US$77.08 in electronic trading on the New York Mercantile Exchange at one point yesterday afternoon. It had declined more than $3 in two days.

But Gulf and European markets remained fairly steady. "I think it's a bit early to write off the markets yet. Asia followed overnight falls in the US but Europe is so far holding up," said Ali Khan, the managing director and head of equities at the investment bank Arqaam Capital in Dubai. The frustration for many local investors is that they seem to feel the negative effects when global markets drop but do not see the corresponding positive effects when the news is more encouraging.

"We're not really benefiting from the upside in global markets," Mr Yasin said. Analysts said that if a decline continued in US markets late yesterday and today, it could spill over into the Gulf next week. "If we see a continuous correction in the US markets today and tomorrow, next week will be met with a correction in regional markets as well," John Sfakianakis, the chief economist at Banque Saudi Fransi in Riyadh, said yesterday.

"Whatever happens at the international scene will impact the regional scene." * with reporting by Hadeel al Sayegh and Sarmad Khan [e-mail]