GCC market capitalization drops

GCC stock markets carried on their negative performance throughout the month of June 2011, and ended on a lower note, barring Abu Dhabi Securities Exchange (ADX) which had marginal gains.

Regional markets took their cue from international markets, amid a lack of fundamental catalysts, as they waited for second quarter 2011 GCC corporate results, Kuwait-based Global Investment House said in its monthly report.

During the month of June, GCC investors especially in Qatar and UAE had their attention geared towards MSCI’s decision regarding the upgrade of both bourses from frontier to emerging markets status.

On June 21, MSCI, decided to postpone its decision to December 2011, citing the need for more time for market-participant feedback on new trading rules and systems. MSCI also referred to what it called “stringent foreign ownership limits” such as limited availability of shares to foreign investors as being concerns for the countries.

This point has been more strongly voiced for the Qatari market, which caps overseas ownership at 25 per cent, while under existing UAE law, foreign companies must have nationals as their sponsors and are limited to a maximum 49 per cent ownership of businesses, except in free zones.

The decision has been viewed in a positive light by both countries, as they vowed to press ahead with efforts to further develop the local bourses

By the end of June 2011, Dubai Financial Market (DFM) posted the steepest monthly decline amongst its GCC peers, down by 2.76 per cent. That was followed by a 2.61 per cent decline posted by the Kuwaiti market as measured by KSE price index.

Trials to switch to a new trading platform weighed on the Kuwaiti market. Some brokerages were not ready, while extra fees and new capital requirements were also concerns.

As for the performance of the Saudi market, biggest regional in terms of market capitalization, its monthly losses reached 2.38 per cent, as measured by Tadawul All Share index.

The poor performance of the Saudi market during the month could be attributed to local factors like the potential slowdown of the economy as a consequence to the newly-introduced Nitaqat system, which is new set of employment rules, impacting mid to small sized companies.

Saudi Arabia plans to limit the number of work permits given to foreigners to try to increase employment among Saudis and larger firms will need to meet higher quotas.

Trading activity was lighter during the month, and is expected to continue to decline during the summer months, and the holy month of Ramadan which falls in the month of August this year. GCC bourses saw 10.81 billion shares being traded in the month of June 2011, as compared to 15.86 billion shares traded in the previous month (-35.78 per cent).

Aggregate value of shares traded reached $26.67bn in June 2011, as compared to $39.48bn (-32.44 per cent) reported in the previous month.

The breadth of GCC stock markets tilted towards decliners in June 2011, as 347 stocks registered monthly loss, compared to 136 advancers, out of 540 traded stocks. Market capitalisation of the GCC markets combined stood at $745.12bn, down by $13.39bn during the month.

 

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