Reforms will help capital markets mature

A new report has identified key reforms that Gulf markets must make to reach their potential.

The financial districts of the six GCC countries have never looked more healthy. The skyscrapers that house bankers, brokers and the stockmarkets themselves all convey the impression they are home to the region's petrodollars.

But there is far less activity than there might be. The GCC's stock exchanges in particular manage only a tiny proportion of their countries' wealth.

Some of the activity raises further worries. Deyaar, a major property developer listed on the Dubai Financial Market (DFM), is being investigated by police for alleged financial irregularities.

A new report from the City of London Corporation, which has more experience than most in managing a large financial centre, has identified several reforms that Gulf markets should bring in to make the most of their potential.

Among other things, it says governments should reduce their holdings in listed companies and regulators should impose stricter corporate governance standards.

GCC governments will not reduce their holdings in strategically important companies anytime soon. This will continue to have a knock-on effect on market liquidity.

However, financial markets are improving. Dubai International Financial Exchange delisted a company for corporate governance abuse for the first time on 1 May. Wealth management company Fortune Management had failed to publish its results on time.

At the same time, the UAE's Securities & Commodities Authority is updating its corporate governance rulebook.

Deyaar, meanwhile, says the ongoing police investigation will have no impact on its profitability and the outcome will ultimately benefit all companies on the DFM, their shareholders and the market itself.

On corporate governance, if not on government shareholdings, those shiny-looking financial markets are making some progress.