Thursday, Apr 15, 2010


 
   By Tim Falconer 
   A DOW JONES NEWSWIRES COLUMN

Bahrain likes to shop itself to the world as the most business-friendly location in the Persian Gulf.

But the island kingdom, a once heavy-hitting Middle East financial hub and now playground for weekend Saudis, is in serious need of a capital-markets booster.

The country's mantle as the preeminent place to do business in the Gulf has been wrested away by the likes of Dubai and Doha and it's now in danger of dropping off investors' radars as a place to park money.

The island nation's sleepy stock market continues to disappoint. The Bahrain All-Share Index has returned a modest 6% this year, putting it firmly mid-table when compared with the performance of its Gulf peers. Then again, underperformance isn't exactly a new concept given the gauge experienced its 'annus horribilis' last year, slumping 19% (the worst Gulf performer), and this after a whopping 35% slide in 2008.

Trading volumes have hardly set the world on fire either. According to Global Investment House, 163.3 million shares changed hands on the Bahrain exchange during March. In Doha, this number stood at 216.7 million shares, while U.A.E. volumes--Dubai's and Abu Dhabi's exchanges combined--totaled 9.7 billion shares.

As Akber Khan, director of asset management at Al Rayan Investment, happily pointed out: "There's the issue of a lack of daily liquidity and poor depth and breadth of stocks on the Bahrain stock market. Institutional money is therefore unable, in almost all cases, to participate."

Indeed, the island state's stock market is a long way from being considered diversified. The bulk of its capitalization is made up of banking and investment stocks. And herein lies the major problem for Bahrain.

Confidence in the banking sector has been pulverized over the past 12 months.

The financial shenanigans of Saudi conglomerates Ahmad Hamad Al Gosaibi Bros. & Co. and Saad Group resulted in respected Bahraini institutions The International Banking Corp. and Awal Bank being placed in administration by the central bank last year.

Repairing damaged sentiment in the banking sector will go a long way to helping Bahrain recapture its financial markets swagger, say analysts.

Still, there are some plans afoot to reenergize capital markets, but progress remains slow and the timing uncertain.

A new rival market operator, the Bahrain Financial Exchange, which wants to act as a trading platform for both Islamic and conventional products in equities, derivatives, commodities and currencies, just this week said it's pushing back its launch date to October after its self-imposed first-quarter start target passed. It didn't give a reason for the delay.

Bahrain in Arabic translates loosely into "Two Seas". It's capital markets, it seems, are lost in one.

(Tim Falconer is currently News Editor, Middle East for Zawya Dow Jones. He has been a financial news reporter since 1999. He has reported on equity, money and commodity markets for Dow Jones Newswires in Wellington, London and Dubai. He can be reached at +971 04 364 4968 or by email: tim.falconer@dowjones.com)

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(END) Dow Jones Newswires

15-04-10 1037GMT