The market value of companies listed in Saudi Arabia has fallen by more than $300,000 million since the Tadawul All-Share Index (TASI) hit a peak of 20,634.86 on 25 February. That is about three-quarters of the kingdom's 2006 gross domestic product and may be the biggest evaporation of equity values in stock market history. The smaller exchanges of Qatar and the UAE have lost a similar proportion in the same period.

The trend has dealt a crushing blow to advocates of equity markets for mobilising domestic savings, financing local companies and promoting Gulf economic diversification. Confidence in shares has been rocked and share float pipelines blocked. The exchanges this year have hindered growth, not helped it, and enriched the wealthy at the expense of the majority.

The share boom and bust is one of the biggest public policy failures in modern Gulf history. The authorities acted too late and did too little to temper the share euphoria. Gulf banks helped inflate the bubble by providing easy finance to equity purchasers on terms that boosted their profits. There was silence from the leadership of major joint stock firms about the share madness that was bound to end in tears.

The price is now being paid. Most GCC banks are reporting year-on-year profit falls as earnings originating from share market activities slump. But none has reported a loss and Gulf banking remains among the world's most profitable.

On 11 November, the Saudi index fell to just over 8,000 and the price of shares in Saudi International Petrochemical Company (Sipchem) dropped below their offer price in first-time trading. They have since recovered, but the illusion that Gulf initial public offerings (IPOs) always rise was shattered. There is little to recommend floating in markets that discount company values. Oger Telecom has postponed plans to list on the Dubai International Financial Exchange. The flood of IPOs expected in 2007 could dwindle to a trickle.

GCC economies are continuing to benefit from the effects of high oil prices, though the latest forecasts suggest they will be below, rather than above, $50 a barrel in 2007. Rosy projections of more double-digit expansion next year are being replaced by more sober expectations. If the historic link between GCC share values and oil prices remains in place, there will be no early relief for those with equities.

Companies will find different ways to raise money. GCC banks can step in to fill the gap left by the ebb of the equity market tide. There will be private placements rather than public offerings. Eyes are turning to the fledgling Gulf bond market.

Investors have other options. Those with a taste for speculation are piling into GCC real estate, where prices are still rising and worries are mounting that the next bust will come there. The risk-averse will opt for foreign stock or the reassuring security of depositing their money with a big, safe bank.

Advocates of better regulation, more transparency and regional capital market integration will be encouraged. A single GCC exchange operating to high international standards may not have avoided recent horrors. But its performance could hardly have been worse than the existing seven's average this year.

There are other implications. Plans for privatisations through GCC stock markets will be trimmed, postponed or even cancelled. But the biggest losers are the Gulf share markets themselves. As GCC equity values dissolved, the face of world stock exchanges was being transformed. The New York Stock Exchange is merging with Euronext. Nasdaq announced on 20 November that it had acquired almost 30 per cent of the London Stock Exchange in what looks like a winning move in its campaign to buy the bourse. These deals are inspired by