Saudi Arabia's main stock index fell 6.4 per cent yesterday following unprecedented protests on the streets of Cairo that have shaken investors around the world.
The Tadawul All-Share Index suffered its biggest daily fall since May, mirroring volatility on Friday in most of the world's major stock markets. Oil rose by 4.3 per cent to US$89.34 per barrel late on Friday on fears that the protests in Egypt could disrupt crude shipments through the region.
Gold, a traditional safe haven for investors, was up 1.7 per cent to $1,341.70 an ounce, its biggest increase since late last year. Prices for US government debt - another safe-haven investment - have also been on the rise.
"Foreign investor confidence has been shaken and the same is true for local investors," said Paul Gamble, an economist at Jadwa Investment in Saudi Arabia. "It was inevitable [the Saudi market] was going to fall, though it fell perhaps more than we thought it would."
Analysts said the fallout from the turmoil in Egypt was likely to continue this week in other regional stock and bond markets. Egypt's EGX Index fell by 16 per cent last week before regulators announced the Cairo Stock Exchange would be closed from today. The country's 30-year government bond prices dropped 6.9 per cent last week. Stock indexes in Abu Dhabi and Dubai ended the week on a negative note.
Concern is intensifying among foreign investors about the situation in Egypt as many withdraw from the market. Farouk el Okdah, the central bank governor, told Bloomberg yesterday the country had US$36 billion (Dh132.22bn) in foreign currency reserves, enough to pay all investors who wanted to exit.
"The entire region is being overshadowed as the protests continue in Egypt, leading to a view that the situation is much more severe than what people thought initially," said Haissam Arabi, the chief executive of Gulfmena Alternative Investments in Dubai. "The meltdown is mostly retail driven and local confidence is poor right now as investors are pricing a higher risk premium on those assets."
The cost of insuring against the default of Egypt's government bonds rose by 18 per cent on Friday, according to Bloomberg. The country's credit default swaps were trading at 455 basis points, meaning it would cost an investor $45,500 a year to insure $1 million worth of bonds.
Saudi credit default swaps also rose by more than 50 per cent on Friday, although analysts said they were not a reliable gauge of investor fear because Saudi Arabia had no external debt and its swaps were thinly traded.
Analysts and investors are still trying to assess the full economic impact of the recent protests across north Africa, principally in Egypt, Algeria, Morocco, Jordan and in Tunisia - where the government fell two weeks ago. In addition to the affects on markets, observers are worried about how foreign investment, tourism and trade flows may fare if political uncertainty persists in the region.
Essa al Saleh, the chief executive of Agility, a logistics company based in Kuwait, said yesterday on the sidelines of annual World Economic Forum meetings in Davos that he expected trade to be affected.
"In those markets there will be some impact on trade," he said.
Egypt, Tunisia and other north African countries have long looked to tourism as a source of economic growth. Following the collapse of the government, tour operators have stopped booking trips to Tunisia, but they are still offering holidays in Egypt and other parts of the region.
Direct foreign investment into the region has also been pushed into the spotlight by the protests. Shares of Dana Gas, an energy company based in Sharjah that has gas concessions in Egypt, fell by 6.6 per cent between last Tuesday and Thursday. Shares in Arabtec and Drake & Scull International, two construction contractors based in Dubai with business interests in Egypt, also fell at the end of last week.
The Egyptian subsidiary of Etisalat, the UAE's biggest telecommunications company, said it was complying with an order to suspend services in parts of the country as authorities took steps to cut communication between protesters.
"Etisalat Misr said on Friday that the authorities had told all mobile operators to suspend services in selected areas of the country," the company said. "Etisalat Misr said it would comply with the order."