Stock markets in the Middle East, and the Gulf Cooperation Council (GCC) in particular, are being prevented from resuming their momentum by vested interests.

The gradual recovery in these markets is being hampered by the share price estimation on a non-scientific basis. This is being done by companies that have an interest in share prices fluctuating over short periods of time.

These moves indicate a desperation to manipulate stock prices and achieve rapid gains. It seems strange that Arab and GCC financial regulators don't pay the required attention to these practice that creates confusion and leads to sharp fluctuations in stock markets.

Significance

This assumes greater significance given that the companies that make these price evaluations have conflicting interests in stock market dealings.

Take Credit Suisse, for example, which is active in trading stocks in many GCC and Arab bourses. The bank set the target share price of Union Properties at Dh3.9 a year ago, then reduced the price in an unprofessional manner to Dh0.03 two months later.

This created a great deal of confusion, leading to the reduction of the company's share price to Dh0.45, although the nominal price is Dh1.

No justification

No doubt real estate companies all over the world, including in GCC countries, are experiencing difficulties, but that does not justify such devaluation in a company's share price and giving it away almost for free.

Even the shares of bankrupt companies and banks such as Lehman Brothers Holdings did not hit this sort of price level.

As for evaluating share prices of well-performing banking establishments, we find that EFG Hermes evaluated the Dubai Islamic Bank stock at Dh9.70 at the onset of the financial crisis, with a strong recommendation to buy the shares in the long and short run.

However, the same bank valued the share price sharply lower at Dh2.30 two months ago.

The same EFG Hermes, which is active in speculation and stock trade, estimated the share of Industries Qatar at 190 Qatari riyals (Dh191.58) at the beginning of the global economic crisis, only to reduce the price after two months to 112 riyals.

These are merely two examples of the attempts by vested interests to manipulate the financial markets in the region. This damages financial markets and investors alike.

Such behaviour calls for steps by financial market watchdogs to put in place new laws.

Companies that own investment portfolios must not be allowed to trade in regional stock markets as they evaluate stock prices according to their own investment interests and not the real value of the shares.

Companies should not be allowed to take advantage of loopholes in legislation to harm promising markets that are expected to play a role in the development of their regions.

This is one of the issues that has to be given the priority it deserves by Arab and GCC bourses, through legislation that prohibit companies speculating in the stock market from evaluating stocks and shares.

Neutral hand

The process of share price estimation has to be assigned to neutral and specialised companies. It is only then that the stock evaluation process will be valid and useful in developing financial markets.

Such a move will ensure that investors receive neutral information that they may use to choose the direction of their investments.

Neglecting the important issue of share evaluation will harm stock markets and will contribute to their destabilisation. It will also hinder the recovery of regional stock markets to a level that reflects their actual status

This is essential as most of these companies achieved good results at the end of 2009. Their stock prices should reflect this improvement.

 

Dr. Mohammad Al Asoomi is a UAE economic expert