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A state of panic and uncertainty prevails among investors in the Gulf Cooperation Council and other parts of the Arab world, after many of them lost their savings in the stock market due to the global financial crisis.
At this stage, wisdom and patience are extremely necessary, as the global economy is passing through a turbulent time.
The crisis is still in its beginning, and its consequences will be felt in every place in the world. The impact of the global credit crunch is limited to stock markets in the Gulf and Arab region. Unlike the United States and Europe, the crisis has not affected our banking sector, property, services and the job market.
The banking sector is still strong for two reasons: One, it's not significantly engaged in relations with the institutions involved in the mortgage crisis; and Second, central banks in the region have the liquidity to intervene at the right time, if needed.
There are some losses caused by deposits in US and European banks that have announced their bankruptcy, yet this problem is still under control and can be tackled by coordination with central banks, which have so far pumped nominal liquidity into the region's markets. This simply means that the banking sector is sound and strong enough to deal with the effects of this crisis when the necessity arises.
Meanwhile, the service and transport sectors, along with the job market have not been affected by the global credit crisis as they still maintain their regular growth rates.
Naturally, investors are hesitant to carry out property transactions, yet this is normal in such circumstances because investors need some time until the picture becomes clearer, and the consequences of the financial crisis are known.
Although investors have the right to fear for their life savings, the banking credit offered to the property sector is within safe levels in GCC countries, where banks and financial institutions did not give risky loans without sufficient guarantees, which is a crucial point.
Thus, what is happening in Arab and GCC bourses is a reaction to the developments in global bourses, which is normal because the global economy has become more interlinked than ever.
As such, we must be aware of this fact and take our investment decisions accordingly. The situation is complicated, and may deteriorate further before the rescue measures taken by the US and Europe run their course to contain the crisis and curb its devastating effects.
The situation in our stock markets is caused by psychological, rather than logical reasons. If there was any real crisis, it would expand to affect the banking and service sectors, job market and other sectors related to the economy, However, they are still safe from the consequences of the global crisis.
Meanwhile, the state of panic that is created among small investors has put pressure on the stock markets. It has given speculators a good chance to take advantage of the prevailing situation. This has lead to sharp fluctuations, which are expected to last for the next few weeks or even months. This will spark more tension and make small investors lose their sense of direction.
Therefore, it isn't wise for small investors to sell their shares at the current prices, liquidate their savings and turn them into bank deposits with an interest rate (or profit in Islamic banks) that does not exceed 2 per cent.
Keep in mind that the markets will eventually recover. After the end of this crisis many regulations and laws that govern regional stock markets should be reviewed to lay the grounds for mature markets capable of dealing with emergency crises.
The writer is an expert on UAE economy.
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