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The decline in Arab and Gulf stock markets has led to a state of confusion among observers. This decline is similar to poor visibility on a foggy day. An uncertain outlook made these markets lose direction.
Globalisation has led to an entanglement of international markets which are influenced by unpredictable developments.
However, this global crisis has not changed regional market characteristics related to general performance and economic growth.
Sharp falls in the last two months took their toll on markets all over the world. The US and European markets were highly affected by the subprime mortgage crisis, as seen in the first and second quarter results of this year, where major companies suffered losses, while other companies' profits plummeted.
It was not strange for companies' shares to fall in international markets, because their performance and profits would not allow them to maintain their earlier prices.
Prices in Asia decreased because companies were negatively affected by oil price increases, especially in countries such as China and India who are major oil importers.
Political instability in other parts of the world, such as Pakistan, contributed to an additional decline in their stock markets. The situation in the Arab and Gulf region is completely different.
The profits of joint stock companies are high, and there is an increase in liquidity thanks to high oil prices. Growth rates in these countries are very high in an unprecedented manner.
Apart from the region's unstable security situation, there are other factors related to the market structure and its fragility.
Foreign investment that does not take up a large percentage of this market because of foreign ownership restrictions was able to pull down Arab and Gulf markets after a sequence of events that have nothing to do with these companies' performance.
Foreign investment
Foreign investments in local markets have lately declined due to reasons that are not performance related either, similar to the situation in the US and Europe.
These drops are due to cover-ups in the companies' home countries, and geo-political fears related to the Gulf region.
The structure of Arab and Gulf markets does not allow for such surprise developments to be able to maintain the strength of their markets, which reflects the strong performance of joint stock companies and Gulf economies in general.
Another reason behind this imbalance is the absence of important financial instruments in Arab and Gulf markets, especially in the companies' that boost markets, which may interfere in such cases to restore the balance.
The absence of such companies is an indicator to the immaturity of stock markets in the region, which are all relatively new. This calls for a revision of these markets' basic components, and the integration of some of its basic elements.
Such imbalances make stock markets move contrary to the general economic conditions. Moreover, these markets do not reflect the positive situations of the economy, which is unusual from a professional point of view.
Setting up these market-boosting companies is possible, and has become essential for maintaining the development role of these financial markets.
This is both vital and essential for economic stability in the region.
The writer is a UAE economic expert.
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