Bulls outrun bears

14 January 2000
SPECIAL REPORT STOCK MARKETS

The star performer in 1999 among MENA markets was Turkey, which closed more than 200 per cent up on the year in dollar terms. This was partly because of a rebound from the slump at the end of 1998, triggered by Russia's economic meltdown, but the gains also owe much to the positive sentiment surrounding the new government's economic reform programme, to be backed by some $4,000 million in IMF credits.

Another success story was the Cyprus Stock Exchange, which broke out of the doldrums to increase its value almost seven-fold. The meteoric rise was fuelled by corporate take-overs, robust profit growth and unprecedented demand for banking stocks, caused by their prospective listing on the Athens Stock Exchange. The exchange was forced to close itsdoors on several occasions to allow

brokers to clear mountainous paperwork backlogs.

Egypt also had a good year, and is now being tipped, along with Israel (up over60 per cent in 1999), as a key market for 2000 by international brokerage houses. Other notable risers included Tunisia, Palestine, Iran and Pakistan.

The Saudi Arabian market closed some40 per cent up on the year, lifted by the bounceback in oil prices and by the government's promised economic reforms. This robust performance was not matched elsewhere in the GCC, however. Kuwait lost some 9 per cent while the UAE market slumped 18 per cent. Oman ended slightly up on the year.

The worst performer of 1999 was Lebanon, with Beirut shares closing some21 per cent down on the level at the end of 1998. However, the prospect of a peace deal in 2000 following the resumption of Syrian-Israeli peace talks gives hope for the future. The more positive mood triggered a last- minute recovery in Solidere shares.

Going global

The number of international equity deals to emerge from the region was limited, but they were nonetheless important. Bank Hapoalim became Israel's first financial institution to sell equity in London: the $160 million global depositary share (GDS) issue closed some two times oversubscribed. Two international issues came out of Egypt - a £E 338 million ($81.25 million) global depositary receipt (GDR) offering by Al- Ezz Steel Rebars and a £E 350 million($84.14 million) GDS issue by the Holding Company for Financial Investments (Lakah Group), which was completed only after the size and pricing were considerably reduced. Qatar Telecom listed its stock in London in the form of GDRs, becoming the first Qatari company to open its doors to international investors.

In the pipeline for 2000 is Kuwait's National Industries Group, the first local institution to announce its intention to tap the international equity markets. Other high-profile offerings will include Telecom Egypt, 10 per cent of which is expected to be sold in January or February, and a minority stake in Maroc Telecom following completion of a strategic sale. Both companies have been valued at about $5,000 million.

Status seeking

Last year saw significant steps taken to enhance the status of MENA markets among the global investment community. Many made substantial investments to modernise and upgrade their trading facilities. The Bahrain Stock Exchange, the Cairo & Alexandria Stock Exchanges, the Dubai Financial Market and the Doha Securities Market all installed additional technology to automate trading and back office operations, albeit to differing degrees. The Saudi authorities are understood to be negotiating the purchase of an automated trading system while the Amman Bourse and Muscat Securities Market (MSM) are also taking steps to go electronic.

Many stock exchanges are investing in new infrastructure, such as wide area networks, enabling brokers to trade from locations outside the exchange. Substantial investments in technology have also been made to enhance data dissemination as the importance of on-line information for investors is recognised. The internet is providing a further avenue for data dissemination.

Such investments have been accompanied by improvements in disclosure and reporting standards and efforts to curb insider trading. The MSM was restructured in January, separating into three separate entities the stock exchange, depositary and regulator. The Saudi government is in the final stages of preparing a new set of capital market regulations, including the setting up of an independent regulator. In Tunisia, new tax incentives have been announced to encourage investment in equities.

Foreign ownership restrictions are being lifted. Bahrain last March threw its doors open to foreign investors with the passing of new legislation. Nationals of other GCC states are now permitted to own stakes of up to 100 per cent in local companies while non-GCC investors may own up to 49 per cent. The Commerce Ministry says it may decide to extend this to 100 per cent at a later date if such a move is consideredto be 'in the interest of the national economy'.

Legislation permitting non-GCC investors to participate in equity investment was also ratified in Kuwait. The indirect investment allows foreigners to acquire shares in companies listed on the Kuwait Stock Exchange and to participate in the establishment of publicly-listed companies. In Saudi Arabia, the government said it would permit investment by non-Saudis in local shares through established mutual funds. Many see the move as testing the water ahead of full market liberalisation. Qatar has announced plans to follow suit in the first quarter of 2000. The planned formal UAE share market is also expected to open up in the months ahead.

Such developments reflect the growing efforts by the region's capital markets to compete for funds in the global marketplace but international interest in the MENA markets remains modest. The lack of liquidity is the most potent factor dissuading foreign fund managers from investing. Nevertheless, the positive steps taken last year to enhance accessibility and transparency are important, and any advances in the peace process would go a long way towards improving investor confidence in the bourses of the Levant. The addition of Bahrain, Lebanon and Oman to the International Finance Corporation's index series and the anticipated inclusion of Egypt in the MSCI Emerging Markets index early this year should also help boost international capital flows into these markets.

A MEED Subscription...

Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.