Business | Analysis

Global financial markets recover their vitality

Local markets have become speculation-driven, not for medium and long term investments

  • By Mohammed Al Asoomi, Special to Gulf News
  • Published: 21:13 April 23, 2013
  • Gulf News

Global financial markets (bourses) in most countries across the world have managed to recover their vitality and their indexes have returned to their normal levels that prevailed in the period before the financial crisis, including capital markets in developed countries, such as the United States, Britain, Japan and emerging Asian markets and European Union’s (EU) countries despite their continued sufferings from the repercussions of the financial crisis.

Unlike other financial markets, the fluctuation of GCC stock markets still continues, as these markets have yet to reflect their trends, except in narrow limits that do not match good economic conditions and fast growth in the GCC countries, whose financial markets are supposed to recover their vitality even before other markets in the world.

This calls for observers and investors to wonder about the reasons behind it, especially that separation or the contradiction between the good economic conditions and the recession in the Gulf capital markets gives wrong impressions and reduces investor confidence as stock markets reflect economic conditions in general.

Of course, there are many reasons and obstacles that can be resolved, so that the GCC capital markets can be able to overcome the crisis of confidence. Certainly, market indices are not required to return to their pre-crisis levels, as is the case in global markets. This is because the GCC markets suffered more than other markets from exaggerated speculation.

Since one cannot expect that the Saudi index, for example, will return to the level of 21,000 points, but at least to reach 11,500 points because the Saudi stock exchange remains at a standstill and cannot break the 7,000- point barrier, as is the case in the rest of GCC markets.

Among many reasons, there are structural reasons and other procedural ones related to regulations and laws that govern the function of the GCC markets.

First, local markets have turned into speculation-driven markets, not markets for medium and long term investments that would contribute to development. Even when the GCC stock markets left the door wide open for foreign investments, unfortunately these investments entered these markets for speculation, which harmed their reputation. This is because foreign investors found that local investors are speculators, a fact that encouraged them to follow suit.

The problem is that these markets lack protection that can limit speculations that exist in all world stock markets. Apart from speculation, which are restricted by transparent laws in foreign markets, the GCC bourses lack institutional investment as well.

It is vital for the GCC investment funds, including the sovereign ones, which invest across the world, except in their local markets, to play a larger role.

These funds only invest through their ownership of some companies and banks — listed on local stock markets — that were acquired even before the founding of stock markets in the GCC countries.

On the other hand, there are the endless leaks which fuel further speculation and allow rapid and transit flow of domestic and foreign capital that focus on specific stocks, the speculative stocks whose prices are swinging significantly within a short period, due to information leaks and earning of quick profit and then escape to find other leaks at the expense of real investors, which in return destroys confidence in the markets

Unfortunately, regulations and laws do not hold leaks accountable, except in a very limited scope, although it is not difficult to discover those who leak information and hold them accountable. This is simply because those leaks do not cause damage to the stock market alone, but to the overall economy and shake confidence that cannot be restored easily.

It seems that the departments that manage capital markets are not totally interested and do not give any attention to this issue, despite the lapse of many years since this irregular situation once appeared. They act as if they do not care, and their work is mainly focused on public relations, turning a blind eye to the volume of leaks and frantic speculations.

However, it is not difficult to resolve these issues and develop legislation and regulations that govern the functioning of the GCC capital markets, reduce leaks and speculation and force local and foreign investors to switch from speculators into real investors while keeping speculation within acceptable limits.

It is quite possible for capital market departments to improve their performance and cooperation with the ministries concerned and investment funds so as to help save Gulf markets from their present status and strengthen confidence in the economies of GCC countries.

The issue is not all about stock markets, but is related to investment in Gulf markets in general. Of course, once local investors and their investment funds turn into real investors and give up speculating, foreign investors will follow them.

This is an issue of development and investment growth and development based on trust and stability in the Gulf economies.

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