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Mon 17 Mar 2008 07:11 PM

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Shock US rate cut sparks further market turmoil

Markets across Gulf suffer worst losses in months on fears global slowdown may spread.

Markets across the Gulf suffered their worse losses in months on Monday after a surprise US rate cut and expectations of more to follow sent stocks tumbling on concerns that regional markets could be hit by the global slowdown.

The US Federal Reserve cut its discount rate - the rate at which it lends to banks - by 25 basis points on Sunday, and is expected to slash interest rates by up to 75 basis points when it meets on Tuesday.

Markets in Saudi Arabia and Bahrain both dropped more than 2%, while those in the UAE, Oman and Kuwait saw more than 1% wiped off their value.

The losses follow a miserable day on Sunday, when Gulf markets also fell on concerns over the expected rate cut in the US, which will force central banks in the region to tighten their own lending rates and fuel inflation.

"Global markets are declining, which is giving rise to the question of whether the region will continue to follow the global markets or will break loose from their effect,” said Chahir Hosni, sales manager at EFG-Hermes.

“On the one hand, you have record oil prices and high liquidity in the region and on the other, you have global financial worries. I think that the region is just going through a temporary phase of following global markets and will soon break free from the impact of global market worries.”

Saudi Arabia's main index posted its fourth consecutive day of losses on Tuesday to end down 2.1% on 9,455.13 points.

Samba Financial Group, Arab National Bank and telecom Mobily paced the drop, plummeting 5.73%, 5.09%, and 4.41% respectively.

Bahrain’s index also slumped, down more than 2% to end on 2,768.62 points, its single largest one-day drop in nearly four months. Ahli United Bank led Bahrain’s decline, down 6.98%.

UAE markets posted their largest drops in over a month with the Dubai benchmark index falling 1.65% to 5,581.93 and Abu Dhabi’s slumping 1.72% to close on 4,601.51 points.

Dubai Islamic Bank (DIB) and UAE telecom Etisalat led the way, posting losses of 2.07% and 1.88% respectively.

Oman also fell, paced by Bank Muscat and Oman National Investment Corporation, ending the day down 1.24% to close on 10,592.41 points.

Bank Muscat and Oman National Investment declined 2.65% and 6.27% respectively.

After posting the Gulf's only positive close on Sunday, Kuwait’s main index was also dragged into negative territory, led by banks.

Kuwait Finance House and National Bank of Kuwait dropped 0.63% and 0.99% respectively, leading the index down 1.08% to finish on 14,135.00 points.

After posting the worst losses of any Gulf market on Sunday, Qatar's benchmark index bucked the regional trend in Monday’s trading, posting a gain of 0.15% to close on 10,208.99 points.

The positive close ended a two-day streak in the red for the gas-rich state.

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