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Stimulants urged to boost GCC bourses

Study proposes cutting government stake and raising SWF contribution
Stock markets in Gulf oil producers need to introduce stimulants as part of a series of measures aimed at upgrading their performance and preventing sharp fluctuations following one of their largest declines in 2011.

The government-controlled Emirates Industrial Bank ( EIB ) made the proposal, which it said must include cutting the government stake in listed shares and attracting capital from sovereign wealth funds (SWFs) in the region.

The Dubai-based EIB suggested incentives along with other measures following what it described one of the most difficult years in the performance of the bourses in the six-nation Gulf Cooperation Council (GCC) in 2011.

In its monthly economic bulletin, EIB said all GCC bourses, excluding Qatar's Doha market, suffered from sharp falls and some of them fell to their lowest levels in sharp contrast with the strong performance of regional economies. While Doha market ended the year higher by around 2.2 per cent, the collective market capitalization of the GCC's seven stock exchanges dipped by nearly 21 per cent through 2011, according to the report.

It said the decline in some GCC bourses was higher than in some Arab countries hit by political turmoil while the general performance of Gulf equity markets was below that in the European Union despite its debt crisis.

As a result, thousands of investors in the region suffered from massive losses while the GCC markets failed to play their role of attracting foreign capital.

The report said sharp falls in bourses are usually associated with economic crises but that was not the case in the GCC, adding that this should prompt regional authorities to study such problems in their bourses.

"There are many solutions that could stimulate GCC markets and prevent further unwarranted deteriorations and fluctuations," it said.

"It is time to introduce stimulants to achieve that goal...they should include a revision of the high government stake in listed shares and persuading regional SWFs to maximize their investment in local markets since return on the profits of listed banks is nearly triple that on deposits with those banks."

EIB also urged GCC bourse managements to develop their systems and begin conducting studies that will highlight the strong local economies and high profits of listed companies to dealers to encourage them to pump more funds.

"GCC bourses are also required to tackle the problem of reluctance by institutional investors to enter local markets despite their massive financial resources...we believe that Qatar's market remained strong through 2011 because of the entry of institutional investors, who saw in the decline of share prices an opportunity to make more profits...that bourse was also given a strong push by the government's decision to intervene and buy shares of some banks."

EIB also advised GCC bourse authorities to work for increasing "investment awareness among small dealers" and interfere to curb "harmful" speculation.

© Emirates 24|7 2012