Dubai: The global financial markets are going through another phase of turbulence and where investors have suffered losses due to multiple factors fuelled by speculation. As a consequence, only the speculators get to generate outrageous profits in the stock and commodity markets.
Negative factors are also to the fore in the regional bourses, making them even more vulnerable to losses than other markets.
Uncertainty created by successive economic crises have hit major economies, including those of China and Brazil that had until now led global growth levels.
The ongoing Eurozone situation continues to impinge on investor sentiments, and a Greece crisis is looming on the horizon once again. Only the Indian economy has been achieving growth rates as expected.
As for the GCC’s financial markets, falling oil prices along with the previous factors have been burdensome for equity, and with no let as there are forecasts of more drops in oil prices.
This may affect the performance of some public shareholding companies, especially financial institutions. These entities primarily rely on funding of small and medium enterprises and it is this category primarily affected by the decline in the non-oil sectors.
This means the suffering of GCC bourses is more than that of stock markets elsewhere. It would have been possible to curb this if the structure of the capital markets were more cohesive and transparent.
Speculation
The financial markets lack market-making companies that create a state of balance required for the functioning of stock markets and can reduce speculation and sharp fluctuations.
Though this became essential after the market collapse in late 2008, this unique step was postponed, resulting in severe downturns that have destabilised the confidence in the region’s bourses.
While stock markets in the developed countries saw declines ranging from 10-15 per cent this year, the Arab bourses declined to the tune of 20-25 per cent. This was despite the positive results from some of the listed companies, such as airlines, which have greatly benefited from oil price drops of more than 60 per cent.
On the other hand, geopolitical factors cannot be ruled out, which have turned the region into an unattractive environment for foreign and domestic investments.
The negative impact is growing due to the growing tensions in the region and where there are no prospects regarding proper solutions to the ongoing conflicts.
The bourses are also significantly influenced by psychological factors along with objective considerations related to the global economy and the collapse in oil prices.
These two factors, which fuel more uncertainties, force investors, especially small ones, to stop speculating and adopt a long-term investment approach.
Such an approach must be based on their awareness of the markets and a focus on the performance of companies, many of which still enjoy good performance and high profits.
Due to these factors, next year will bring about more fluctuations and contribute to further declines. Meanwhile, any gradual improvement will basically depend on favourable changes to the geopolitical situation.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.