There's No Reason to Panic Yet
Column11 August 2007
Global stocks have come under heavy selling pressure due to growing concerns about liquidity arising from the mounting US subprime mortgage linked losses.
Despite a threat of the subprime woes developing into a global contagion, GCC markets have shown significant resilience throughout the past few weeks. Riding high on strong second quarter corporate results, most have reported strong gains in July and the first two weeks of August.
The divergence of regional market trends indicates the low correlation between the global markets and GCC markets. However, it would be naive to assume GCC markets are totally insulated. With credit spreads widening and a severe crisis of confidence gripping the global credit markets, the GCC's economies could be dragged into the crisis through increased cost of funding. Signs of trouble are already evident as more than a dozen regional companies postponed their bonds and medium term note issues last month.
Although liquidity in itself may not be an immediate concern for the regional companies, if some of the subprime losses find their way into the balance sheets of banks, it could mean trouble. At present the region faces limited direct impact from the crisis so there is no need to press panic buttons.
Global stocks have come under heavy selling pressure due to growing concerns about liquidity arising from the mounting US subprime mortgage linked losses.
Despite a threat of the subprime woes developing into a global contagion, GCC markets have shown significant resilience throughout the past few weeks. Riding high on strong second quarter corporate results, most have reported strong gains in July and the first two weeks of August.
The divergence of regional market trends indicates the low correlation between the global markets and GCC markets. However, it would be naive to assume GCC markets are totally insulated. With credit spreads widening and a severe crisis of confidence gripping the global credit markets, the GCC's economies could be dragged into the crisis through increased cost of funding. Signs of trouble are already evident as more than a dozen regional companies postponed their bonds and medium term note issues last month.
Although liquidity in itself may not be an immediate concern for the regional companies, if some of the subprime losses find their way into the balance sheets of banks, it could mean trouble. At present the region faces limited direct impact from the crisis so there is no need to press panic buttons.
Labels: Global, United States
posted by HRM Deborah of Israel and the Messenger of Peace at 8:02 AM
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