Gulf stocks plunge again on Bahrain unrest contagion fears
Posted on 03 March 2011 with 3 comments from readers
Tanks crossing the causeway into Bahrain on Tuesday and the arrest of a radical Shia cleric in the Eastern Province, plus the days of protest called in Saudi Arabia for March 11th and 20th have resulted in a plunge in local stock markets.
The Dubai Financial Market is at a seven-year low, and Saudi stocks have lost their entire recovery from the global financial crisis two years ago.
Uncertainty grows
Uncertainty is always the greatest bugbear of stock markets. The Persian Gulf is full of it right now. Trading patterns are already in a mess across the region with revolutions in Tunisia and Egypt and civil war in Libya as well as ongoing protests in Bahrain.
The fear is that Bahrain could suffer another violent crackdown, and the sight of tanks crossing the causeway from Saudi Arabia on Tuesday did nothing to allay these concerns. Meanwhile, the situation in the neighboring Eastern Province of Saudi Arabia, which is 80-90 per cent Shia Muslim is clearly very tense after the arrest of a leading cleric.
Northern Africa is less of a fear for the Gulf stock markets. This is bad for some trade flows. There is a widespread misperception in the Western media that when the cameras stop rolling on the revolution it is business as usual.
But Samsung has not made a single delivery to Egypt since the troubles started and is running down its warehouse. Many other foreign suppliers are in the same situation and business is suffering. Then there are the many companies with investments in these countries, what are they worth now?
Trading interrupted
Quite what the knock-on effect on business hubs will be on trading cities like Dubai is uncertain but it is certainly not going to be good, at least in the short term and maybe longer. The quid pro quo is the capital flight to safe havens like the UAE from the rest of the region, although this is clearly not going to the stock market.
Brokers think the bourses could go still lower and of course that is without the possibility of some of these fears about a wider contagion actually being realized.
As the ArabianMoney newsletter noted this month in a special edition on revolution and investment (click here), the hot summer of the Gulf cannot come quickly enough this year to cool things down.
3 Comments posted by readers:
Taking a quick glance at global markets today, it is fascinating to watch the “melt-up” in western & developed markets (e.g. UK, up 1.5%; DAX, up .65%; NIKKEI, up .9%; US S&P, up 1.4%; etc.), where traders are completely ignoring the 2,000 pound gorilla in the “global room.”
Outside of the middle east, traders are once again burying their head in the proverbial sand on the smallest amount of “misinformation” that appears. Buried in their delusions, they believe that, once again, central planning has regained control of the situation.
Humpty Dumpty is gonna fall.
Stocks and real estate are standing on one leg in some Gulf States. They just need that one kick for them to fall and then some bargains could be picked up. Dubai’s stock market and real estate market are both standing on one leg now. In Saudi things are different with the real estate market due to local demand for housing which is different than in Dubai as there is not much local demand from locals (non-expats that is).
@ Andy:
I amended my remarks in another commentary on this website, pertaining to silver investments. I’m adding it here, in the event that you didn’t see my remarks about SLV.
Further Proof that You Can’t Trust SLV or JPM:
Here’s a video clip that shows the performance of SLV over the years. Those who own SLV should beware, because they are being cheated. Go here:
http://www.youtube.com/watch?v=sR28o5f9aKE&feature=player_embedded