Consolidation is the way forward for Gulf stock markets

26 October 2010

A region with a population of less than 40 million is too small to support nine stock markets. Since the financial crisis gripped the world in late 2008, calls for consolidation among the region’s stock markets have increased

Share prices and trading volumes tumbled amid the global economic uncertainty and the eight bourses in the GCC were no exception.

Dubai’s well-publicised debt crisis weighed heavily on investor sentiment, with the Dubai Financial Market (DFM) recording the sharpest decline, losing 72.4 per cent of its value during 2008. Meanwhile, Saudi Arabia’s bourse, the Tadawul, fell 56.5 per cent and the Abu Dhabi Securities Exchange (ADX) dropped 47.5 per cent.

Analysts who support consolidation say a region with a population of less than 40 million is too small to support nine markets – the Bahrain Financial Exchange (BFX) is set to launch in November. Merging the various bourses would boost liquidity and draw new investors to the region, they say.

In July, the first stock market merger in GCC between DFM and the Nasdaq Dubai was completed. It has already produced positive results, with an uptick in both trading volume and value. This should help push the case for the long-touted merger of the ADX with the DFM.

Today, trading volumes have tumbled to their lowest level in four years. Dubai and Abu Dhabi’s benchmark stock indexes have slumped 17 per cent and 8.5 per cent respectively so far in 2010. That compares with a gain of 2.8 per cent in MSCI’s emerging markets index.

If the UAE exchanges were to consolidate, the cost of transactions would go down significantly as the brokers could all be trading as one market.

Capital markets require scale to be successful and it is clear that a merging of liquidity pools is the only possible long-term solution.

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