Gulf exchanges face shake-up

There should be no let-up in moves to adopt higher standards of financial disclosure for listed firms.

A long-expected shake-up of Gulf stock exchanges is edging closer. Some markets, such as the Dubai International Financial Exchange, are clearly struggling to attract investors and companies. But just down the road, the Abu Dhabi Securities Exchange (ADX) is thriving.

The ADX is now growing more quickly than its closest rival, the Dubai Financial Market, which is still the largest in the UAE.

If the trend persists, it will mark a victory for Abu Dhabi over Dubai – one that is all the more surprising given Dubai's success at marketing itself as an international financial centre.

The ADX is aiming to attract $200bn worth new listings within a couple of years. It is a staggering influx of capital into a market just eight years old.

The plans prompt several questions. Is there enough investor appetite to soak up the shares? Alternatively, if demand accelerates, can the authorities prevent a stock market bubble? Most importantly, do the fastest-growing markets have the infrastructure to cope?

There are some measures that all exchanges should take. There should be no let-up in moves to adopt higher standards of financial disclosure for listed companies, preferably based on internationally accepted norms.

Encouraging cross-listings between Gulf markets would also help to match supply with demand.

While there is room for small markets in most capitals around the Gulf, there can only be space for a few major ones.

Success should become self-perpetuating – the more liquidity there is in a market, the easier it is to attract even more. Exchanges that do not take advantage of the potential in the next few years, including perhaps the DIFX, will have to downgrade their ambitions.

Agenda: Dubai's underperforming bourse