By Ola Galal and Jonathan Wright
Largest retreat since 2006 market crash as investors dump regional shares, bonds and currencies.
Saudi stocks plunged a record 10% on Tuesday leading the largest retreat in Arab benchmarks since a 2006 crash as investors, spooked by a shaky US economy, dumped regional shares, bonds and currencies.
Currency forwards showed bets on the demise of Gulf dollar pegs receding as the risk of US recession dissuaded investment in the world's top oil-exporting region. Gulf bond prices fell as funds scrambled for safer assets such as US Treasuries.
Investors from Morocco to Qatar have been tracking the global equity turmoil for the past week. Monday's slide, which took MSCI's world stock index to its lowest since December 2006, triggered Tuesday's sell-off across the region.
"People are in panic mode and overreacting," said Haissam Arabi, managing director of asset management at Shuaa Capital.
The Saudi, Qatar, Oman and Abu Dhabi indexes all suffered record losses.
Until last week, the region appeared immune to bearish sentiment sweeping global markets. Foreign funds started selling as declines elsewhere skewed portfolios in favour of the Gulf. Retail investors, who dominate trading, panicked.
"This is... mayhem," said Shakeel Sarwar, head of asset management at Bahrain-based SICO investment bank. "We didn't even see this in the crash of 2006."
Dubai's index fell 6.21%, its largest one-day loss since March 2006. Oman's benchmark sank 8.3%, Qatar's 7.8% and Abu Dhabi's 6.8%, each a record plunge.
Aldar Properties and Sorouh Real Estate fell more than 9% in Abu Dhabi, having more than tripled last year after opening their shares to foreign investment.
"Foreign investors are like hunting packs, they all come and go together," said Parvez Khan, head of investments at Commercial Bank of Qatar.
Banks fell on fears an equity slump could hurt revenue from brokerage, asset management and initial public offerings (IPOs).
Commercial Bank of Qatar sank 10%, as did Oman's Bank Muscat, and Saudi Arabia's Al-Rajhi Bank, the world's largest Islamic lender.
Gulf IPOs had just recovered from the crash of 2006. Shares in DP World, listed on the Dubai International Financial Exchange (DIFX) after the Middle East's largest IPO last year, plunged 17% to a life low.
Gulf investors, their coffers swollen by a near five-fold increase in oil prices since 2002, guide other Arab markets.
There were falls in indexes in Jordan (4.2%), a 22-month nadir, Egypt (3.3%), an 18-month low, and Morocco (1.5%).
Bids on UAE dirham forwards were pricing in a 1.8% appreciation in a year compared with 2.2% on Monday.
Bond yields rose. Spreads on the HSBC-DIFX GCC Aggregate Index of bonds ended at 192.57 basis points over the London interbank offered rate on Monday, about 30 basis points above the 2007 close, HSBC said. (Reuters)