Donna Block
Share World
Of all the world’s stock markets those in the Middle East are the least known and the most overlooked – and with good reason. Not only are they small, they are also unexciting.
The Middle East is home to some of the most restrictive stock exchanges in the world, such as those in Qatar, Iran, Kuwait and Saudi Arabia. Foreigners are for the most part excluded from participating in all but a few of the region’s stock markets.
Exchange controls are labyrinthine. Banking practices are rigid and austere. Some exchanges are in part governed by Koranic fundamentals that forbid charging interest on loans.
But despite their insularity and aloofness, not even these Oriental bastions of capitalism have escaped the meltdown of the world’s markets.
The price of oil -the mainstay of the majority of economies in the region – has been steadily declining,
speculators have been attacking local currencies, and share prices have lost 20% to 25% in the past few months.
One of the most liberal exchanges in the region is Jordan’s Amman Financial Market. It began trading in 1978 and the government has recently started a privatisation programme of state assets. The Amman market got its first boost when Jordan pioneered new investment and tax laws which granted equal treatment to all investors and made it easier for international investors to trade on the stock exchange.
But Jordan is a very small country with few large companies. Unlike its neighbours, it is also poor in natural resources, so it is looking to become a money centre for the Middle East, a “financial demilitarised zone”. It has a skilled workforce, many of whom are Palestinian, and they have managed to avoid the deep-seated feuds that envelop the rest of the region.
Jordan’s main rival to be the money centre is Lebanon, but the country’s economic and physical infrastructure have been severely damaged by years of civil war.
When the war officially ended in 1991, the government started on the road to recovery by resuscitating many financial institutions, including the Beirut Stock Exchange, which reopened in 1996 after 13 years.
The bourse also signed agreements to cross-list with the Kuwaiti and Egyptian Stock Exchanges, making it easier for their Arab neighbours to trade in Beirut. As long as the peace holds, Beirut is in the running as a receiving centre for money flowing into the Middle East. But, and this is a big but, it needs rules against money laundering and insider trading.
With poor financial laws and weak enforcement, Lebanon is a hotbed of drug and terrorist money. So far the nation’s banks have benefited from banking secrecy laws, but international investors will increasingly demand greater scrutiny of clients. If Beirut can put a regulatory agency in place for its securities markets, there is a good chance it could become “the Wall Street of the Middle East”.
Israel’s Tel Aviv Stock Exchange is the most developed in the region. It rocketed to prominence with the listing of a series of well-received high-tech companies. The Israeli exchange includes several of the largest emerging-market companies in the world and boasts more than 400 listings.
Israel is considered neither an emerging market nor a truly developed market. It has a financial infrastructure with a skilled brokerage community and there is an understanding of the rewards and risks of stock market participation.
But Israel is a small country and stock exchanges in small countries can overheat quickly and reach meltdown even faster. In addition, many of Israel’s young companies are in the technology sector, which is especially volatile. Technology is a spin-off from Israel’s defence industry.
A highly skilled work force and well- educated Russian immigrants have helped to create some of the worlds most advanced technology companies. This puts them in the same league as some of the United States’s technology stocks, and subject to the same market forces.
Until just two weeks ago, the prospects for Israel looked very bright. Inflation was under control, interest rates were on a downward trend and traders were enthusiastic that share prices were going up, up and up.
There were signs that the public, which abandoned the market in the early Nineties, was ready to start investing in shares once more. But just as traders started to pile in, the bottom fell out of the global markets, taking Tel Aviv with them. However, the fall has not been as severe as other markets, and Israeli traders believe if they can survive these shocks, it will eventually have a positive effect.
Next week: Australia and New Zealand