Business | Markets
Gulf Arab bourses opt for global alliances rather than consolidation
Political pride is likely to delay much-needed consolidation of Gulf Arab stock exchanges, with regional bourses focusing instead on alliances with global players and diversification from cash equities.
- Reuters
- Published: 23:11 August 10, 2009
- Image Credit: Javed Nawab/Gulf News
- One problem for the Gulf bourses is that fragmentation of liquidity is a major deterrent for foreign investors.
Dubai: Political pride is likely to delay much-needed consolidation of Gulf Arab stock exchanges, with regional bourses focusing instead on alliances with global players and diversification from cash equities.
Bahrain will launch the ninth stock exchange in the region next year - the UAE alone has three bourses - and with volumes low and fees high, the case for consolidation is strong.
But there is little enthusiasm among bourse officials for a pan-Gulf exchange, despite the fragmentation of liquidity being a major deterrent for foreign investors, and Dubai is likely to remain pre-eminent for some time to come.
"A lot of this is political, if the exchanges were purely profit-driven then consolidation would happen a lot sooner," Robert McKinnon, Al Mal Capital managing director, said.
The UAE apart, regional bourses have little domestic competition to worry about, with rival exchanges unlikely to receive regulatory approval to trade, as has happened in developed markets. This protectionism enables Gulf bourses to charge fees many times higher than their global counterparts.
"The global economy has slowed the development of the regional stock markets. The question is whether an economy the size of the UAE's can support three stock markets competing for the same liquidity - the answer is no and I think they know that," a Dubai-based analyst said.
But Gulf bourses are increasingly eager to link up with international players and move away from cash equities.
In June, the Qatar Exchange agreed to sell a 20 per cent stake to NYSE Euronext and said it would launch a derivatives platform, exchange-traded funds and bonds.
Analysts said the Qatar deal showed the accent was on rivalry and not consolidation, though competition could eventually lead to more pressure to merge.
"It shows the race is on for who wants to become the regional hub," Haissam Arabi, chief executive of Gulfmena Alternative Investments, said. "This is in everybody's best interests, with more competition pushing innovation, the creation of new instruments and better pricing."
McKinnon said if markets opened up to competition, fees would have to come down eventually and if this happened, there would be a need to consolidate.
The alliances are driven by the needs of both the international players and the Gulf bourses.
"International exchanges are making a land grab and placing their bets in terms of who'll be stronger going forward," McKinnon said. "They're buying an option on the future success of the exchanges and buying a seat at any potential future consolidation."
The Abu Dhabi Secur-ities Exchange and Kuwait Stock Exchange have agreements with NYSE and Nasdaq OMX respectively, and plan to launch derivatives markets.
"Derivatives will enhance liquidity substantially and are part of the maturing of the regional markets," Rami Sidani, Schroders Middle East head of investment, said.
Nasdaq Dubai is the regional leader of diversification, with an exchange-traded commodity, listed bonds and a derivatives exchange.
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