Capital Markets Guide 2009 - Middle East: towards innovation and transparency
Capital Markets Guide 2009 - Middle East: towards innovation and transparency
Capital markets in the Middle East are going through a period of unprecedented change as the region’s economies undergo diversification and liberalisation. Until mid-2008 the region seemed almost immune from the forces acting upon developed and emerging markets elsewhere in the world. Supported by high oil prices and heavy public sectors pending, the region’s economies were growing strongly and capital markets remained buoyant. Middle Eastern stock exchanges were growing in number, size and complexity, especially in the Gulf Cooperation Council (GCC) states. The region was also experiencing considerable inflows of capital and expertise as investors in other parts of the world sought to profit from its strong growth.
Since mid 2008, it has become apparent that the Middle East will not escape the effects of the global financial crisis. Regional stock markets have given up much of 2007’s gains, real estate prices have fallen and several governments have taken action to support local banks.
Even so, many markets in the region remain well positioned to weather the downturn and to take advantage of future recovery. Middle Eastern capital markets have become increasingly sophisticated and only a fraction of the expertise that the region has gained in recent years is likely to be eroded by the current downturn. The region’s exchanges are becoming steadily more integrated with global capital markets, and increasingly innovative. The ongoing evolution of Islamic finance is a central element of growth as is heavy government involvement in the development of capital market infrastructure, and this is development very much on Middle Eastern terms. The Islamic finance industry has not been unaffected by the financial crisis, but there seems little doubt that it will continue to grow in size and maturity.
Transparency and corporate governance are emerging as a critical issue for Middle Eastern capital markets. The financial crisis is accelerating the agenda, as international investors demand greater openness from listed companies, regional banks and public sector bodies. There is no doubt that real progress has been made, but far greater openness will be a prerequisite of further development.
Governments and companies need to view improved transparency as an opportunity, not a threat. If the region’s capital markets can make significant progress in this area during the global downturn, they will be far better placed to benefit from eventual recovery and to play a greater role in the development of a more balanced global financial system.
The capital markets of the Middle East have great potential for further growth. This guide reviews the key themes of change sweeping through the region, provides specific insights into four key Middle Eastern markets and compares the performances of the region’s major stock exchanges.