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29 November 2023

Arab stock investors lose $515bn to global crisis

By Nadim Kawach

The global financial turmoil has eroded the wealth of Arab equity investors by $515 billion (Dh1.89 trillion), although it had a limited impact on the region's economic and banking performance through 2008, official figures showed yesterday.

After one of the most profitable periods during 2007 and early 2008, Arab equity investors emerged as the main victims of the global crisis and by this week their wealth dipped to its lowest level in nearly five years, showed the figures by the Abu Dhabi-based Arab Monetary Fund (AMF), a key Arab League institution.

Equity holders in the GCC have been worst hit by the crisis, with their loss standing at $499bn, nearly 97 per cent of the total Arab loss.

From about $1,213bn on September 15, when the global distress began to worsen with the collapse of the US Lehman Brothers bank, the combined market capitalisation of the Arab world's 15 stock exchanges plummeted to about $698bn on March 7, a loss of nearly 515bn in just about 140 working days, an average daily loss of $3.6bn. The loss pushed the Arab bourse capitalisation to its lowest level since the end of 2003, when it stood at about $423bn.

The decline, which started in the second quarter of 2008, followed one of the most profitable periods for Arab stock exchanges, with their market capitalisation leaping from about $998bn at the end of 2006 to $1,185bn at the end of 2007. It jumped above $1,300bn at the end of March 2008 before it began its rapid decline in the following months due to the crisis, mass foreign sell-offs and speculation.

So far in 2009, the combined Arab market capitalisation has dipped by nearly $45bn and bourse officials see no major improvement through the year. "The markets could start recovering once world markets recover. If there is no recovery in global markets, no market here is going to recover," said Tom Healy, Chief Executive of Abu Dhabi Securities Exchange (ADX).

"It is also a problem of liquidity. Bank liquidity, the only major source of liquidity for markets, has dried up. What is happening in such a situation is that investors are taking their investments out of stock markets to get liquidity. If that continues, I don't think any market will recover," he said.

The AMF figures showed Saudi Arabia's Tadawul, by far the largest and most speculative bourse in the Middle East, accounted for more than 40 per cent of the total Arab market loss, plunging by about $209bn. Dubai and Abu Dhabi collapsed by nearly $59bn and $44bn, respectively, while there was a loss of $93bn in Kuwait, $66bn in Qatar, $61bn in Egypt and $19bn in Jordan.

So far this year, all Arab markets have continued to bleed except ADX, which gained about $2bn, a fraction of its loss through 2008.

Speaking to Emirates Business last month, ADX Deputy Chief Executive Rashid Al Baloushi expected a difficult 2009 albeit better than 2008.

"It was almost the most controversial year for regional markets because the decline has nothing to do with market fundamentals," said Jamal Ajjaj of Sharjah-based Sharhan Securities.