Since the beginning of the year, the Bahrain All-Share Index has fallen by 8.2 per cent. In the past few weeks, the index has been largely flat as investors wait in hope for progress on the country’s National Dialogue with opposition groups.

The Bahrain Bourse has experienced a devastating few months and there appears to be few signs of things turning around as the country still faces an uncertain political and economic outlook as it heads into the traditionally quiet summer period.

After protests erupted on 14 February, the exchange registered no impact, continuing its upward trajectory before peaking at 1,472.77 points on 23 February. The next day it fell to 1,432.61. The downward trend has continued since.

The ruling family’s heavy-handed response to the protests has shaken investor confidence, which still remains low and is proving difficult to restore.  

“Bahrain is not really a market investors look at and the instability has made their situation worse. It has fallen by 8 per cent since a year ago, which is the third worst performance in the region after Kuwait and Oman,” says Akram Annous, analyst at Dubai-based Al-Mal Capital.

Between January and March, the value of shares traded fell 77 per cent from BD14m ($39m) to just BD3.4m, while the volume of transactions fell by 67 per cent in the same time period.

March was the worst performing month on the bourse as more protesters were either killed or arrested in the ensuing political unrest. The kingdom stationed Saudi Arabian and UAE troops to help quell the protests. Bahrain’s moves attracted the disapproval of the international community and as the violence escalated, the decline on the exchange became more dramatic.

On 16 March, the Bahrain Bourse was closed for one day after the government declared a state of emergency. Since the beginning of the year, the market capitalisation of the Bahrain All-Shares Index has decreased by more than $1bn to settle at a little over $19bn.

In a bid to boost trade, the exchange is planning to introduce short-selling and the delivery-versus-payment (DvP) system in 2012, a requirement of index provider Morgan Stanley Capital International (MSCI) that could encourage fund managers around the world to start looking at investing in Bahrain. That seems unlikely though.

“I can say with certainty that the market is not being reviewed presently for an upgrade to emerging market status by MSCI. Given its historically low trading activity and aggregate market capitalisation, we are not expecting it to be put under review any time soon,” says Fahd Iqbal, Dubai-based head of equity research at Egypt’s EFG Hermes.

News of the plans did bring some optimism, with the Bahrain Bourse closing 8.14 points higher after it was announced on 8 June. Those gains have since been undone, and the index continues to be trading with little direction as investors await progress on the National Dialogue and to assess the economic impact of the unrest.

“A key question remains as to the direction and scale of earnings growth going forward and hopefully second quarter results should give some insight into this,” says Iqbal.