Despite the high expectations for a revival in Gulf markets in 2010, none of the region’s exchanges have managed to boost trading this year.
With the exception of Saudi Arabia, all markets reported a decline in trading in May as a result of the negative impact of the European debt crisis.
The MSCI Arabian Markets Index declined by as much as 11 per cent compared to a fall of 9.9 per cent on international markets.
So far this year, the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX), declined by 12.4 per cent and 5.1 per cent respectively. Meanwhile, Kuwait’s exchange fell 4.4 per cent, Qatar’s declined 2.5 per cent and Oman’s index closed down 1.2 per cent. The best performer was Saudi Arabia’s Tadawul, which ended the month flat.
And with summer months already here and the onset of Ramadan in August, it is clear there will not be any solid activity until at least mid-September.
Consequently, there is increasing sentiment that regional governments should intervene to help the flagging equities markets get back on their feet.
One proposal is a stimulus package to support lending to the private sector in order to boost confidence and bring liquidity back to the market. Indeed, with the exception of Saudi Arabia, the public listings market has been slow. Not a single UAE company has listed so far this year.
Tighter bank lending and cash flow problems have hit regional firms, the majority of which are small to medium-sized family businesses.
Going forward, governments should also consider offering state-owned companies to the public in order to boost the regional markets. In the case of the UAE’s exchanges, consolidation is crucial in order to ensure a faster recovery.
The DFM and the ADX have been holding merger talks for the past few months with little sign of progress. In light of the bourses’ shrinking liquidity and declining volumes, it is in everyone’s interest that these talks are concluded sooner rather than later.