Gulf stock markets are still dealing with extremely difficult circumstances compared to international financial markets, which have already overcome the repercussions of the global financial crisis.

In spite of this, there are some in the administration of GCC stock markets who take uninformed decisions and make ill-studied proposals that hinder these markets from recovery, especially after values of share trading have declined.

Among these is the proposal by managers of financial markets to allow trading on the fractions of fils, which is a very small currency that does not exist in Gulf bourses.

In fact, there is no explanation for such an unpractical proposal, which may lead to increasing the stagnation of GCC bourses and to a decline in share trading levels.

The only explanation for this decision is to imitate some foreign bourses, whose conditions are totally different from Gulf markets.

For example, if a company's share is traded at five dirhams or five riyals, this share needs 25 fils to be increased by five per cent. This process may take many sessions, but if the proposed trading on the fraction of one fil is implemented, this requires a complicated process to calculate the fractions of one fil which does not exist in the Gulf region as it is not classified in Gulf currencies. This process also requires giant computers to conduct accurate calculations in a sea of millions of daily transactions.

This makes one ask, did those who made this suggestion ask themselves about its impact on local stock markets?

Does the problem of GCC bourses lie with the fraction of one fil, or does it lie with structural difficulties?

Luckily, the implementation of this suggestion was stopped at the last moments, otherwise we would have seen an unprecedented downturn that might have been worse than the one witnessed by stock markets during the peak of the global financial crisis.

Yet, the proposal to allow trading on the fractions of one fil has not been excluded stopped, only postponed. The proposal should be ruled out to protect the market from its negative effects.

The key problem facing GCC stock markets is that although they have developed remarkably during the last 10 years, in terms of the number of listed companies and the number of share traders, which jumped from thousands to millions, the administration, rules and legislations of these markets have remained unchanged.

Another important problem facing these markets is conflicting decisions, which have been taken which contradict the conditions of these bourses.

This was evident when a Gulf stock market, which witnessed reasonable price leaps just after the market's administration, was changed and replaced by a new one.

General listings

Apart from the importance of the trading percentage, the next year is expected to see more general joint stock companies being listed on the GCC's bourses.

It is also expected that these markets will gain more significance due to economic and financial developments in the Gulf region, which makes it necessary to update the administrative and legislative structure of GCC stock markets to cope with anticipated changes.

Also, it should also be possible to work out how to take appropriate decisions which help stimulate stock markets and increase their efficiency as well as their ability to attract local and foreign capital.

Such changes must keep pace with the next stage of the growth of Gulf stock markets, so as to provide the appropriate climate and conditions to help create a harmony between their activities.

 

Dr Mohammad Al Asoomi is a UAE economic expert.