Middle East unrest leaves world's markets in panic

By Tarek El-Tablawy
AP Business Writer
lAlaska Journal of Commerce

CAIRO (AP) — An almost 7 percent plunge in Saudi Arabia's stock market on March 1, and Egypt's decision to further delay the restart of Cairo's exchange — already shuttered for over a month — is spotlighting the impotence of Arab governments in managing the political and economic fallout from the protests engulfing the Mideast.

Across the region, governments have pledged billions of dollars in new assistance for their neediest citizens in a frantic bid to pre-empt the kind of demonstrations that led to the ouster of Tunisia's president and then his Egyptian counterpart.

But the money has failed to appease a population in a region where unemployment is rife, poverty even more pronounced and the majority of the population is below the age of 30.

"The shape and substance of what happened in Tunisia will be felt in every country (in the region), in varying degrees," said Angus Blair, head of research at the Cairo-based Mideast investment bank Beltone Financial. "This region is changing fundamentally, and it's a political issue, not just an economic one."

As the demonstrations continue with varying degrees of violence in Libya, Yemen, Bahrain, Oman, Iran and Iraq, their political impact is being reflected in the economy. In Saudi Arabia, the benchmark Saudi All Shares Index plummeted on March 1, shedding 6.78 percent, eclipsing a combined loss of almost 6 percent over the previous two days.

Since the start of the Tunisian uprising, the market in Saudi Arabia, the Arab world's largest economy, has lost about $70 billion in shareholder wealth. Meanwhile, the Egyptian exchange has dropped about 20 percent so far this year, most of them amassed in just two trading sessions before the market closed on Jan. 27.

The Egyptian Exchange was slated to reopen March 1, but bourse officials said in an overnight announcement the relaunch date had been pushed back to March 6. It said the move was designed to give investors time to benefit from government efforts to ensure market stability.

The government has said it will provide more than 200 million Egyptian pounds ($35 million) in support to retail investors involved in margin trades, and to smaller brokerages.

"We're losing credibility by the day in international markets," said Karim Helal, managing director of brokerage house CI Capital in Cairo. "If (the delay) is to absorb losses, it won't make a difference. It will just make it worse."

But Arab governments are now more focused on deflecting political challenges that could reshape the fabric of the region. That focus, however, is worrying investors.

"The stock markets (in the Arab world) do not reflect the economic realities of the region," said Said Hirsh, Mideast economist with the London-based Capital Economics. "They are essentially just reflecting the political risk and the total panic by investors."

Investors who were looking for a reason to worry did not need to look far. The protests in Bahrain and Oman are lapping at Saudi Arabia's shores. In Bahrain, the feud is centered on the Shiite-majority push to secure greater rights and freedoms from the Sunni-minority monarchy.

That sectarian rift has the potential to spread to Saudi Arabia, where the Shiites are a small minority, but centered in the eastern provinces where much of the country's vast oil wealth is located.

Unrest, which is already building in the conservative OPEC nation, has the potential to send global crude prices rocketing far above the peaks the market has already hit because of the violence in Libya, a far more minor OPEC producer. The U.S. benchmark on March 1 was above $98 per barrel while in London, Brent crude spiked by $2 per barrel and to reach almost $114 on the ICE Futures Exchange.

Saudi Arabia's monarch, a reformer by the kingdom's austere standards, has tried to pre-empt the protests by ordering an injection of almost $37 billion into programs targeting the country's lower income citizens. The Saudi finance minister said that the money had already been disbursed to the various development funds, banks and institutions that for whom they were intended.

The minister, Ibrahim Al Assaf, also said that the kingdom's financial and economic position was also "stable" despite the blows the country has suffered over the past period.

How long that stability endures is an open question, as is what the countries can do even after the worst of the protests has passed.

Analysts attributed the plunge in the Saudi exchange at least in part to the arrest of a prominent Shiite cleric in the kingdom who called during a sermon for the establishment of a constitutional monarchy. He also warned that Tunisia's uprising was being mirrored throughout the region.

If the market's decline was, in fact, partly linked to Tawfiq Al Amer's arrest, then it offers evidence that the nascent protest calls in Saudi Arabia that have surfaced on Facebook are echoing in the kingdom more widely than many believe.

That might translate into even greater investor unease, which could be reflected on March 2, when investors in other Gulf markets that had closed before Saudi Arabia's exchange tumbled, will have a chance to show their jitters.

"The political risk premium is extremely high at the moment," said Hirsh. "What's happening to the Saudi stock market is an overreaction, but it's also a reflection of how investors are viewing the region."

Egypt's long delayed relaunch of the stock market will likely prove the dangers of waiting too long to give investors a chance to assess the situation.

The market initially closed in the early days of the protests that began Jan. 25, but remained shuttered as labor unrest gripped the nation after Hosni Mubarak's ouster on Feb. 11. Banks closed for a week and the government and Egypt's new military leaders scrambled to assess the economic damage done by the exodus of tourists and the expected dearth in foreign direct investment — two key revenue sources for the country.

The government has promised pay raises for public sector workers and is weighing a stimulus package. It has also offered unemployment assistance to those affected by the crisis. But the political woes weigh heavily on the Arab world's most populous nation, with GDP growth figures being slashed to around 4 percent by the government and even lower by independent economists.

Banks in the country, already cautious about their lending, are have grown even more tightfisted and property developers appear to be the most affected. Those companies have come under greater scrutiny amid claims they secured massive tracts of land for a minuscule fraction of their value.

"There are companies related to the political groups, like real estate development," said Tarek Amer, chairman of the National Bank of Egypt, the country's biggest public sector bank. "Of course, people are careful to not extend credit to them now until things are clearer."

In the exchange, new market circuit-breakers were set up to prevent a collapse once the bourse restarts.

But the delays now seem to be largely driven by efforts to ensure that prominent businessmen linked to the government are not able to liquidate their shares and transfer the funds out of the country. Those businessmen, who head some of Egypt's largest companies, have had their assets frozen — as has Mubarak and his family.

Even if the closure is well intentioned, it is likely to backfire, said analysts.

"It's a major problem in terms of the perception of Egypt as a home for investment," said Beltone's Blair.

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