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Fears for world economy wreak carnage – Gulf markets plunge as oil, global stocks crash

WASHINGTON: The US Federal Reserve building in Washington, DC. Stocks were edging slightly higher in midday trading as investors waited for news about interest rates from the Federal Reserve. — AFP
WASHINGTON: The US Federal Reserve building in Washington, DC. Stocks were edging slightly higher in midday trading as investors waited for news about interest rates from the Federal Reserve. — AFP

KUWAIT: Share prices in the energy-rich Gulf states fell sharply yesterday as oil dived to an 11-year low and China triggered a global markets rout. The gloomy economic indicators and tensions between regional heavyweights Saudi Arabia and Iran combined to dent investor confidence, leading to a massive sell-off that sent prices crashing. All seven Gulf bourses ended the last trading day of the Muslim week in negative territory, with the slide led by the Saudi market, the region’s largest.

The Saudi Arabian riyal fell to a record low against the dollar in the one-year forwards market yesterday in response to a fresh slide in oil prices. One-year dollar/riyal forwards climbed as high as 880 points in very volatile trade, exceeding their previous record of 850 points hit during a previous bout of speculation against the riyal in 1999, according to Thomson Reuters data.

A level of 880 points implies depreciation of the riyal of 2.3 percent over the next 12 months. The riyal is pegged in the spot market at 3.75 to the dollar. Some banks and funds use the forwards market to hedge against the risk that the peg might eventually be broken.

“Several negative factors combined to dampen investor confidence in the Gulf bourses, leading them to dump shares,” said Mohammad Zidan, chief market strategist at Kuwait’s Orbex Brokerage.

“Oil prices continued to fall, with no bottom in sight. China’s economic woes appear to be deeper than earlier believed and Saudi-Iran tensions just added insult to injury,” Zidan said.

The Saudi Tadawul All-Shares Index dipped 4.5 percent to finish on 6,225.22 points, a three-year low. All its 15 sectors dropped, with banking shedding 4.6 percent and petrochemicals 3.3 percent.

The Dubai Financial Market Index dropped 3.4 percent to fall below the key 3,000-point mark for the first time this year. It closed on 2,966.3 points. Leader Emaar properties sank 5.4 percent and most stocks ended down. Its sister market in Abu Dhabi dipped 3.2 percent to end the day on 4,135 points.

The Qatar Exchange, the region’s second largest, dropped 3.0 percent, falling below the 9,800 mark, with losses across all sectors. The normally dormant Kuwait Stock Exchange followed suit, losing 1.6 percent to trade at levels last seen 11 years ago.

The small Oman and Bahrain bourses lost 0.5 percent and 0.7 percent respectively. All Gulf stock exchanges ended 2015 in negative territory, led by Saudi Arabia, after the sharp decline in oil prices. Riyadh broke off diplomatic ties with Iran on Sunday after protesters set fire to its Tehran embassy and

World stocks crash
World stock markets tumbled and oil plumbed new lows yesterday as investors feared for the global economy on signs of a dramatic slowdown in powerhouse China.

European stock markets plunged in morning deals following a heavy sell-off across Asia triggered by a suspension to trading in China, the world’s second biggest economy and key driver of commodities consumption.

Wall Street had already faltered on Wednesday, with dealers spooked by a World Bank report cutting its global growth forecasts again. At about 0915 GMT, London’s benchmark FTSE 100 index was down a hefty 2.8 percent compared with Wednesday’s close.

Leading eurozone markets Frankfurt and Paris were down by more than three percent, with Madrid and Milan faring only slightly better. The smaller Nordic markets were down more than four percent. “Equity markets are continuing their steep losses… with investor sentiment being pressured by various factors,” said Lukman Otunuga, research analyst at trading group FXTM.

“These include the resumption of fears over global growth following weak data from China… while increased geopolitical tensions between Saudi Arabia and Iran and an unexpected nuclear test from North Korea have also encouraged investors to dodge away from riskier assets.”

The week’s geopolitical developments have combined to heap further pressure on oil prices, sending New York’s main crude contract sliding Thursday to a 12-year low at $32.10 a barrel.

But gold was benefiting from its status as a haven investment, while a “rush to the safety of sovereign bonds is underway,” noted Brenda Kelly, head analyst at London Capital Group. “The (German) bund is helping the euro retrace higher against the dollar and the pound,” she added in a note to clients.

Chinese markets were suspended yesterday for the second day this week after they fell more than seven percent, leading an Asia-wide sell-off as Beijing weakened the value of the yuan currency by the most since August. Regulators in China called an end to trade within just 30 minutes of opening after the central bank weakened the value of its yuan currency by 0.51 percent against the dollar. The drop was the biggest since August when the value was cut by five percent in a week-sparking weeks of global market turmoil over worries Beijing did not have a handle on its economic crisis. The yuan is now at its weakest in five years.

Trading was halted just before 10am (0200 GMT) as a “circuit breaker” kicked in after the benchmark Shanghai index slumped seven percent and the Shenzhen composite index, which tracks stocks on China’s second exchange, tumbled 8.2 percent. – Agencies

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