From: glevy@PRATT.EDU
Date: Wed Mar 29 2006 - 14:55:54 EST
Left Margin Arab Stock Market Tumbles; But Who Knows It? By Carl Bloice published by portside, March 28, 2006 Think people in the Emirates don't stage street demonstrations? Think again. On March 8, hundreds of protestors gathered in front of the Kuwait City stock exchange. They weren't anti-globalization protesters, but stockholders who had seen their net worth plummet over the preceding month, culminating the previous day when the market fell 400 points. It didn't get any better. On March 14, the Kuwaiti investor-demonstrators hit the streets again, this time marching on the parliament demanding the government take action to stop the slide. The market had just registered its largest one-day loss and closed at a six-month low. Still it didn't stop. Two weeks later, on March 26, after analysts had begun expressing a positive outlook, the Kuwaiti exchange cascaded again, shedding 239.8 points. According to press reports, the Kuwait protesters accused the big money traders on the exchange of manipulating the market for various financial and political motives. A member of parliament, Abdulwahid Al-Awadi said, "someone is playing with the stock market in an attempt to monopolize it." However it soon became clear that the crisis was not limited to the Emirate of Kuwait. That same day, in the United Arab Emirates, the market plunged to its lowest level in 11 months and observers began referring to the fall as "Black Tuesday." The stock markets fell 11.7 percent in Dubai and 4.74 percent in Saudi Arabia. The Saudi stock market accounts for half of the value of all Arab exchanges, with a capitalization of around $650 billion. Over a two week period, the capital value of the Saudi market slid by more than 30 percent. By March 16, the Financial Times was reporting that the main Saudi index was "down 21 percent from its all-time high, but Dubai, where the collapse began earlier, was 51 percent off." On March 26, in defiance of optimistic forecasts, the Saudi stock market fell 626.65 points. Of the 79 listed companies, 72 saw their price drop. "A lot of wealth is disappearing overnight," Shahid Hameed, head of asset management at Manama-Bahrain-based Securities & Investment Co, told Bloomberg news. How strange it is that in an area of the world that has been officially named a strategic priority for the United States since the 1970s, an economic meltdown is underway and shows no signs of slowing any time soon and yet people in our country are almost totally unaware it is happening. Why the stock markets across the region are being shattered is not clear; international observers and analysts on the scene admit it remains somewhat a mystery. However, it is becoming increasingly clear that the panic behind the rout is interrelated with the political and military situation in the Middle East and Gulf region, the U.S. conflict with Iran and the continuing costly and destabilizing war in Iraq. It cannot bode well for the political or economic security of the international community. The total combined value of the stock exchanges in the Gulf countries fell March 14 to just under one trillion dollars, down some $159 billion from their in 2005 value and more than $250 billion below their all-time high. "'Collapse,' 'Domino effect,' 'Bleeding' screamed headlines in Arab newspapers," reported the Financial Times, as Arab investors tried to come to terms with the region-wide collapse in stock market prices. "It is pure panic and its snowballing effect on investor sentiment which are triggering the fall. We cannot any more call it a correction as it is a crash," Dhaheer Quraish, general manager of Essham Securities, told the Dubai-based Khaleej Times. Evidently there were no street demos in the Saudi capital, but Saudi politicians demanded state action to stop the market decline. There were, however, hospital visits. "High-Living Saudis Panic as Stock Market Collapses," reported the London Daily Telegraph (March 17), observing that Saudi "rich kids have been selling their cars and even rushing to the doctor after a whirlwind stock market crash saw huge profits perish. Heart-attacks, stress, hospitalization, and panic selling are all reported results of the Saudi collapse, which has seen tens of billions of dollars in losses in a fortnight." "Many speculators have disappeared after big losses of the past 10 days and some have been transferred to hospitals, though their families claim they are out of the country," reported Beirut's Daily Star on March 11 -- three days before "Black Tuesday." "Stock markets in Saudi Arabia, Dubai, Kuwait and other Arab countries plunged in unison this week as investors hit the exits simultaneously. US investors are barely aware that these markets even exist let alone bothered by this panic," observed the online finance commentator Capuchinomics.com. Now, while I know next to nothing about the intricacies of stock exchanges, I couldn't help but be intrigued as to why the major mass media in the U.S. have either not noticed that the Middle East stock markets are crashing or don't think it worth reporting. Although financiers in various Arab countries argued that their respective governments should refrain from taking measures to shore up the markets as the crisis deepened, the governments announced various measures to do just that. Over the period since Black Tuesday, most exchanges in the region have been on a roller coaster, more often than not ending the day going down as governments announced various measures to stabilize them. Although Saudi politicians had demanded that the government act to prevent a full-scale market crash, the Saudi officials at first said the government would not intervene to stop the slide. Later, the Saudi government moved to allow foreign residents to trade directly in the market (they were previously restricted to investing in mutual funds) while it began considering a proposal to split shares in order to pull its market out of the doldrums. Authorities in Dubai, meanwhile, put forward a plan to divide listed firms between active and non- active, depending on the number of daily trades, and separate the weaker firms from the main index. On March 14 Prince Alwaleed bin Talal, the world's eighth-richest man, announced he was putting $2.7 billion of his own money into Saudi Arabian stocks. The prince (worth $23.7 billion), according to Bloomberg, would buy 10 billion Saudi riyals worth of stock over the next few weeks. His spokesperson Heba Fatani said, "The prince is a patriot." The public stance of most business observers in the Arab countries is that the exchanges were afflicted by a bubble and that the market declines are merely a "correction." Most attribute it to speculative trading on the part of small investors who have taken up trading vigorously over recent years. Over the past three years the Saudi exchange has ballooned 620 percent. The total value of stocks in Tunisia, the UAE, Jordan, Lebanon, Qatar, Kuwait, Oman, the Palestinian Authority, Egypt, Saudi Arabia, Bahrain and Morocco more than doubled last year. However, other factors for the fall are being cited, including growing unease over the political situation related to the war in Iraq and the torpedoing of the U.S. port management deal involving Dubai Ports World. The expectation is that the correction will continue, having, in the words of the Financial Times, "a few more months to run." It is obvious that the situation in the world, and particularly the region, has contributed to the stock market crisis and that it will have considerable consequences for the future of the countries involved and the international economy. This makes the major U.S. media's obliviousness to the situation ever more curious. Henry T. Azzam, chief executive officer at Jordinvest and MobileCom, Jordan, writing in the Daily Star of Lebanon, said his colleagues expect the markets' downward trend to continue and then "eventually revert back to a positive slope in late 2006 as broad economic indicators remain robust." However, he wrote, "The economic impact of the current correction should not be underestimated. Many small investors will be forced to exit the market with losses incurred. Those who stay will experience the reverse of the 'wealth effect.' People will feel that their wealth has shrunk and this will discourage them from spending. The impact of this on economic growth is difficult to assess, but it would definitely reduce consumption and weaken in the process overall economic activities." But who knows what the future holds? Financial Times analyst Philip Coggan has suggested that how the stock market crisis will play out is very much connected to future political and military developments in the region. "If the recent volatility in markets is to turn into a rout, a catalyst will be needed," he wrote March 17. "It could be US/Iran where discussions are increasingly heated. The global economy has lived with oil at $70 a barrel: could it live with $80 or $100?" --- Carl Bloice is a writer based in San Francisco.
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