Gulf bourses likely to see highs

Just two weeks after GCC and Arab stock markets showed signs of recovery, financial analysts emerged once again with a campaign of rumours and conflicting economic theories.

The problem of Gulf financial markets is they are much affected by global developments, and suffer from a defect in their administrative and legislative structure. That is why they see sharp fluctuations.

For example, the Financial Times Index rose 20 per cent in April compared to March, the Dow Jones Index in New York rose 12 per cent, while the average index for Gulf stock markets has not exceeded 8 per cent in the same month, as reported by the Journal of the Emirates Industrial Bank in its June issue.

Logically, the performance of Gulf Co-operation Council (GCC) stock markets is supposed to be better than this result, since GCC economies are less affected by the global financial crisis than US and British economies.

This is besides the good performance of Gulf joint stock companies in the first quarter of this year, compared to the poor performance of foreign shareholding companies which either suffered major losses, or declared bankruptcy in both the London and New York stock markets.

If we get back to the rumours and economic analyses, Reuters recently carried a business report on the prospects of GCC stock markets, saying: "The recent improvement seen by GCC stock markets is temporary as these markets will witness sharp declines by the end of July."

However, this contradicts analysts' predictions that GCC bourses will see more rises that will bring life back to regional markets.

All these expectations are valid in view of the structural flaw in Gulf stock markets and the absence of scientific and transparent analysts.

Financial analyses are supposed to be carried out by the regulators of financial markets on a daily basis so as to present accurate information about trading and the prospects and performance of stock markets.

This structural defect led to turning regional bourses into massive speculation-dominated markets which harmed the reputation of these markets and made investors, especially foreign, who look for long-term investments, refrain.

And the GCC markets have attracted only those who look for quick profits through swift speculation, this has had a negative impact on the GCC bourses. Therefore, tackling the defects in GCC stock markets has become a very urgent issue.

This can be done by completing legislation and rules that guarantee a minimum level of transparency and curbing speculation in these small markets whose trends and sentiment can easily be driven by speculators.

From a neutral viewpoint, the GCC stock markets have begun to recover just like global markets. And even if Reuters' predictions come true, the regional markets will need a short time to recover and rectify their status.

It is more likely that the Gulf bourses will see highs, especially after the end of the summer holidays and Ramadan.

There are many reasons behind this expectation, the first of which is the good results achieved by joint stock companies while shares of some of these companies are being purchased at prices less than their nominal value.

The second reason is the noticeable rise in oil prices, which will give a strong boost to the econ-omic situation in the region, while the third reason is that global markets have shown signs of recovery from the worst chapter of the international economic downturn.

All these reasons, among, others along with positive developments will be to the benefit of real investors who evaluate economic-related matters from a scientific perspective. Analysis should be based on company performance and financial results.

The next stage will be critical as it will provide significant opportunities to investors to benefit from share prices which are still low, compared to the performance of companies and the expected distribution of cash and share dividends by the end of this year.

Yet, the departments of stock markets are required to play their role in helping investors by updating and developing legislation and embracing the principle of transparency in bourses. This will enhance their developmental role in compatibility with general economic trends in the countries of the region.

The writer is a UAE economic expert.