Flip through the latest issue of Gulf Weekly.
THE_notion that the Gulf is fundamentally sheltered from the global stock market volatilities as long as oil prices remained high was put to a reality check on Tuesday, January 22 when Arab stock benchmarks suffered their biggest declines since the crash of 2006.
However, most stock markets made a strong comeback the next day following the US Federal Reserve's 0.75 per cent interest rate cut.
The Fed move was matched by the UAE Central Bank and as a result Dubai's general index rose 390 points and Abu Dhabi rose 281 points.
Kuwait and Bahrain stock markets, which remained unaffected by the drop, recorded only slight increases.
Kuwait Stock Exchange index rose 0.9 per cent to 13,239.10 points, while Bahrain stock market increased 0.64 per cent to close on 2,811.33 points.
Saudi stocks plunged a record 10 per cent on Tuesday, leading the biggest retreat, as investors alarmed by a US economic slowdown dumped regional shares, bonds and currencies.
With the risk of US recession diminishing the allure of investments in the world's top oil-exporting region, currency forwards retreated after funds scaled back bets on the demise of the Gulf's dollar pegs and fled to safer assets.
The real estate and banking sectors were the hardest hit, accounting for 60 per cent of the markets' total.
In the UAE, the banking sector's substantial decline is attributed primarily to the six per cent in losses recorded by Emirates NBD and the National Bank of Abu Dhabi.
Nevertheless, Dubai's Emaar Properties, the largest Arab real estate firm by market value, whose shares fell 6.15 per cent on Tuesday, says a rout in Gulf stock markets was temporary and led by foreigners.
"If there is an investor selling stocks because of problems he has there in the United States, everybody will be affected, but in my view that impact is temporary," says Mohamed Alabbar, Emaar's chairman.
"All fundamentals are in their best positions historically.
"The economy in the region is growing at between seven and 12 per cent, oil prices are at outstanding levels, and the results of all Arab companies are outstanding," Alabbar adds.
The Gulf stock plunge is the first real indication that the region is not immune from fears that the US is fast moving into a recession. Along with the fall of the region's stock markets, all the main Asian and European stock market indices also continued to fall. Japan's Nikkei index closed 5.7 per cent down, taking its decline this year to 18 per cent.
London's FTSE 100 index lost more than three per cent on opening but had bounced back to about one per cent. This bounce-back, however, could turn out to be ephemeral. All markets are expected to remain volatile for some weeks.
Although it is the sub-prime crisis in the US that has triggered the current turmoil in the world's stock markets, it is not the only concern.
Lack of transparency within the world's financial system means no one knows for certain how much the banks are set to lose. There is also concern that Chinese banks may be set to make big write-offs, bigger than those anyone has predicted, which could undermine China's position as the engine of growth for the world economy.
It is a vulnerable time for the region's stock markets, but despite the turmoil the region's economic fundamentals are reasonably sound. Strong economic growth and large budget surpluses are in fact enabling governments to help bail out US banks.
Investors who pick Middle East stocks as an insurance policy say high oil prices still make the region a better long-term bet than many emerging markets.
Looking beyond the crisis, it is difficult to close one's eye to the region's massive oil surpluses and predict a doom.
Michael Hartnett, head of emerging equity strategy at Merrill Lynch, identifies the Middle East as the pick of the frontier markets among under-developed markets that are less liquid and less correlated with global markets but offer better returns.
The lower the correlation, the less a market tends to react to global swings, making it a good play during volatile times.
