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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 have been traditionally 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 Qur’anic fundamentals and Islamic law, which not only call for peace, equality, tolerance, justice, consultation and respect for the rights of an individual, but also forbid charging interest on loans.
But despite their insularity and aloofness, not even these Oriental bastions of capitalism were able to escape the meltdown that attacked world markets in 1997/98.
The price of oil – the mainstay of the majority of economies in the region – declined for two years before only recently recovering, and now the higher oil price has begun to boost the flagging fortunes of many of these tiny countries. Their stock markets are making slow but steady progress and share prices are finally staging a comeback, making international investors stand up and take notice.
Saudi Arabia, the Arab world’s largest stock market and the world’s largest oil producer, is staging a remarkable comeback. Its all-share index has risen steadily in the past month on improved corporate earnings and higher oil prices.
Islam has deeply affected the history and development of this country. Islamic law governs all aspects of the public, private, social and economic, religious and political life of every Muslim.
There are no foreign exchange controls and capital can move freely in and out of the country but the equity markets are not open to non-Saudi nationals. When Saudi Arabia announced last week that it would set up a council dedicated to implementing and studying economic policy in the kingdom, analysts and diplomats cheered the move as a serious step towards much needed economic reform.
It was Saudi Crown Prince Abdullah who, now famously, told a Gulf Co-operation Council (GCC) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates – summit last year that the boom days of easy petrodollars were gone. He also called for an increasing private sector role in Gulf Arab economies. However, observers said it would be some months before the true role and effectiveness of the council could be assessed.
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, and the death of King Hussein earlier this year is causing some uncertainty in the region.
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 that country’s economic and physical infrastructure has 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.