The Gulf’s bourses have experienced extreme volatility in the past three years. First, heated speculation about the possibility of the revaluation of GCC currencies sucked money into the region from around the world. Then shortly after, the global economic meltdown triggered by the collapse of the US’ Lehman Brothers prompted investors to withdraw their cash.

Despite this, and the Dubai debt crisis, the market capitalisation of most stock exchanges in the GCC grew in 2009, aided by the better-than-expected performance of the region’s economies and an improvement in companies’ profitability levels.

The Muscat Stock Market grew 17.05 per cent in 2009, making it the second-strongest performer after Saudi Arabia’s stock exchange, the Tadawul.

Since the start of the year, the volatility has returned, though. The market capitalisation of most of the region’s bourses has fallen since January. A pick-up in trading activity in the near term is unlikely despite more positive news emerging from companies, due to the summer lull and Ramadan approaching.

Regulators in the region are using the slump as an opportunity to overhaul legislation and develop new products.

Increasingly, like Oman, they are looking to the debt market. Muscat’s ability to capture this market will force it to compete with other financial centres in the UAE, Bahrain and Saudi Arabia.

Muscat’s small economy means it will never be as significant a capital market as its larger neighbours, but good regulations should help raise the bar across the region.