Gulf stocks crumble, credit tightens as fears mount

The Kuwait central bank pumped more cash into the banking system as an emergency move to provide liquidity, while in the United Arab Emirates, credit conditions tightened sharply as interbank lending rates rose.

Blue chip shares tanked, with Dubai-based engineering group Arabtec tumbling 15 percent, Saudi Arabia's largest bank Al-Rajhi down 10 percent, and the Gulf's largest company, chemicals maker SABIC, down 10 percent.

"One of the reasons for the sell-off is the turmoil in the United States and possibly now Europe," said Amro Motasim, chief trader at Ahli Bank, speaking in reference to a 4.5 percent fall in Qatar's leading index.

"Foreign institutions are heavily selling in the market. Some of them are exiting completely," he said.

Saudi Arabian bank shares slid as investors punished a slowdown in growth or decline in earnings and worried about whether lenders stood in the path of the widening financial storm.

Real estate developers meeting in Dubai, the epicentre of the Gulf property boom, put on a brave face and announced ambitious new projects to rival the desert state's artificial palm-shaped islands and world's tallest building.

But investors rendered a harsh verdict, focusing on fears of financing bottlenecks instead, and sent building and engineering shares down sharply.

Dubai's leading index fell 7.6 percent, its largest one-day loss since March 2006. Saudi Arabia's index fell 9.8 percent, its biggest one-day loss in at least 22 months.

Credit crunch

As markets slumped, credit tensions intensified and interbank lending rates in key Gulf states climbed, hitting levels not seen since late 2007 or early 2008. United Arab Emirates one-month rates rose to 4.51875 percent while Saudi Arabia one-month rates hit 4.11750 percent.

Central banks in Europe and the United States have pumped record amounts of liquidity into the interbank markets as fear grips lenders.

In September, the UAE central bank said it would offer banks short-term funds through a 50 billion UAE dirham ($13.61 billion) facility in an emergency move to ease tensions in the money markets.

Dubai has been the centre of a real estate boom since 2002, fuelled in part by a surfeit of petrodollars in the region.

But a global credit crunch is weighing heavily on parts of the real estate market, chasing away many speculators and casting doubts over the sustainability of current growth levels.

The knock-on effects are having a big impact on shares in companies like Arabtec, one of the Gulf's biggest engineering firms, and cooling company Tabreed, down 12 percent.

"The main issue is that investors are a little bit worried about contractors collecting the money from developers," says Alfred Fayek, director of the GCC institutional desk team at EFG-Hermes.

"If the real estate sector is struggling, contractors will be amongst the biggest losers."