Folly

The recent crash in Dubai's stock market suggests that the investment spree there has been folly. A combination of an implicit government promise to make good all capital losses, and a flush of oil money with nowhere else to go, had pushed regional indices up to record levels. But the investors were a homogeneous bunch, which means that very different regional markets are acting in concert as prices tumble.

Dakkak attributed the regional loss to action by Saudi dealers, who invest heavily in all Gulf stock markets, and have recently pulled out to cover losses back home.

“It is a chain reaction. Saudi investors have withdrawn much of their money from stock markets in the Middle East, including Egypt and Jordan, causing them to decline.”

Gulf markets have increased six to seven fold since 2001 due to abundant liquidity generated from a sharp rise in oil revenues. The upward trend and lucrative profits lured millions of small investors including women.

“Almost 60 percent of Saudi investors are small dealers. They depend mainly on speculation and whenever a decline happens they try to exit, causing the market to slide,” Saudi economist AbdulAziz al-Daghestani said.

The funding behind the real estate boom there is similarly speculative.