Governments worldwide have been bailing out their listed companies in recent months in an effort to revive their stock markets and the wider economy. But so far, they have not had any notable success.
Over the past few weeks, the policies of some Gulf governments towards their stock exchanges have also become clearer, and some make more sense than others.
Qatar has been using its sovereign wealth fund, the Qatar Investment Authority (QIA), to recapitalise its listed banks by buying new shares in them.
Existing shareholders’ stakes have been diluted, but if the investments are enough to rebuild the banks’ balance sheets, the financial services sector could stabilise and help the Doha Securities Market in the longer term.
Other government interventions are more worrying. Kuwait and Oman have also pledged to invest funds in their bourses, but the aim appears to be to prop up the markets as a whole, rather than identify the most important sectors.
The Kuwait Investment Authority (KIA) plans to spend up to KD3.8bn ($13bn) buying shares on the Kuwait Stock Exchange. Local brokers hope that if the KIA keeps spending, all share prices will recover. What criticism has emerged has often been aimed at encouraging the KIA to spend more, and quicker.
It is not clear what companies the KIA will invest in, but there is a clear danger that it will be too indiscriminate.
It is also not clear why the fund should spend money in its domestic market when its remit is to build up the country’s overseas assets, and the intervention by a secretive fund will do nothing to make the market less opaque.
Government interventions should be transparent and targeted, aimed at helping to revive the wider economy, not simply bailing out investors in bad companies.
More dramatic polices may yet be needed, but for now the QIA’s approach looks set to do more good in the longer term than Kuwait’s.