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“Diversification, strategic partnerships, increased institutional participation and increased co-operation between the Gulf capital markets will help the GCC stock markets recover from the impact of the recent economic downturn”, said Tom Healy, CEO of Abu Dhabi Securities Exchange (ADX).
Speaking at the World Exchange Congress in Monaco today, Healy outlined the impact the global ‘credit crunch’ had on the GCC stock exchanges. He also gave a positive outlook for the region’s markets and explained ADX’s strategy for future growth.
“The fall in oil prices and the fact that foreign investors had to sell out of emerging markets to cover positions in their home markets had an impact on ADX, but these were not the main reasons stock market prices in Abu Dhabi fell in the second half of 2008”, he said.
“The lack of liquidity in the banking sector meant the stock exchange became the only source of cash for many investors, who needed liquidity, so they had to sell,” he continued. “This was the primary reason”.
Healy emphasised however that despite the difficult market conditions, large financial and energy reserves coupled with powerful Government-driven economic diversification strategies such as Abu Dhabi’s Economic Vision 2030 meant that stock markets in the Gulf region, particularly Abu Dhabi, were likely to recover more strongly than other emerging and some more developed markets, when the markets globally begin to recover.
“GCC economies and their stock markets have very strong and solid fundamentals supported by their financial and energy reserves, as well as forward-looking Governments”, he said.
While discussing strategies for ongoing development, Mr Healy said that diversification was an important objective: “debt securities are beginning to emerge, but are very much in their infancy. Work is also underway in Abu Dhabi to establish markets for Exchange Traded Funds and derivatives.”
He also said that as well as diversified investment tools, the stock markets needed more listed companies and he explained that ADX had signed a number of strategic agreements with other exchange organisations which he said he hoped would lead to more international companies issuing new capital and dual-listing on ADX. “More dual listings would help GCC investors diversify and access new markets and sectors,” he said.
Healy concluded by talking about the creation of a GCC capital market and explained why it would appeal to long-term institutional investors, who would have a stabilising effect on the market.
“GCC stock markets should embrace the idea of a GCC-wide capital market. By this we mean more harmonisation and co-operation especially in relation to regulation, information display and settlement. This need not threaten the individual national exchanges, as the experience of the US and the Eurozone demonstrates that a single, or common, capital market can be built on multiple exchanges.
“In markets that are heavily dominated by private investors, attracting more long-term institutional participation is important for ongoing development. It not only stabilises a market but also encourages more scrutiny of that market and its listed companies, which can improve corporate governance standards and provide more protection for private investors,” he said.
