By Goh Eng Yeow
Markets Correspondent
engyeow1@sph.com.sg

 

FOR two straight days, Wall Street’s widely watched Dow Jones Industrial Index fell by a triple-digit number.

It brought to an end an astounding seven-week rally, as traders reacted to the unfolding events in Libya whose embattled strongman – Colonel Gaddafi – is reportedly trying to cling on to power.

Over here, an uneasy calm appears to have descended on the local market, with the benchmark Straits Times Index holding precariously to the 3,000-point support level.

As I noted earlier, it is too early to make an informed decision as to whether the market has fallen to an attractive level yet for investors to start hunting for bargains.

The scant information coming out of Libya does not give any investor much solace that its problems would be settled any time soon.

But the hands of history rest heavily on financial markets, as they await the outcome of the Libyan uprising against Gaddafi.

I find myself reading up Wikipedia’s account of what happened to Somalia – another African country – after the downfall of its strongman Said Barre in 1991.

Somalia is now described as a failed state, caught up in a civil war among various rival tribal factions. It also grabs our attention in a dramatic manner from time to time, as pirates operating from its long coast-line along the Horn of Africa hijack ships plying the Indian Ocean.

What I find intriguing is that Libya, like Somalia, was an Italian colony until it gained independence.

And like Somalia, Libya is divided into various tribal factions and presided by a strongman, in this case for the past 41 years.

Of course, I hope the similarities end there. More than 100 years after the European colonial powers carved up the African continent among themselves, the impact of their actions is still reverberating today.

But unlike Somalia, Libya is a major oil producer. Any disruptions in its oil wells will have dire consequences on the world’s energy supplies.

The jitters had already sent Brent crude soaring by 5 per cent to US$111 a barrel – a 2 ½ year peak.

And if energy prices stay stubbornly high, it may stir up inflationary pressure across Asia which is already struggling to cope with rising prices.

The Financial Times noted this morning that at least half of Libyan oil production might have already been knocked out by the unrest, as Western oil majors pull their staff out of harm’s way.

It also published a telephone interview it had with Saadi Gaddafi, one of the Libyan strongman’s seven sons, who claimed that the country was “very calm and very safe”.

His father would play a “big father” role in the new order, he added.

One British newspaper picked up a blog by former US vice-presidential candidate Sarah Palin asking why the White House had been swift to put out a statement about the devastating earthquake in New Zealand but nothing on the slaughter on Libya.

But the astonishing speed at which events have been enfolding in the Middle East and North Africa has caught governments and investors elsewhere wrong-footed. Mubarak, the long-time ruler in Egypt, was ousted in only 18 days. There is no easy response to a fluid situation which changes daily,

Just ask Hyflux. Three months ago, it was on top of the world as it unveiled its ambitious expansion plans in Libya. It was clear blue sky with nary a cloud in the horizon to mar its triumph in creating a bridge-head into Africa’s largest oil producer.

But investors must have been spooked by the manner in which the company had tied up its fortunes to North Africa, going by the battering its share price had taken in the past week.

And I repeat my earlier advice – stay on your toes. Libya may turn out to be one of those so-called “Black Swan” events which may have a big bearing on your investment portfolio.