Stock Market
STOCK MARKET
Middle Eastern stock markets are small and often closed to foreign investors.
The stock markets of the Middle East tend to remain relatively small relative to the respective economies of each country, and except in Turkey and Israel are not used by entrepreneurs to fund their operations.
Even in countries where economic liberalism is embedded in the economic life, such as Saudi Arabia, capital markets are heavily regulated and have not had any major influence in helping non-government firms raise capital from the public at large. Exchanges suffer from a lack of reliable information on and from the companies, insider trading is often a problem, and accounting practices are not reliable enough for private investors and funds to make adequate judgment on the value of the companies. Governments tend to interfere with the markets, either to limit their expansion through overregulation or to limit the losses in downtrends, as was the case in Kuwait in 1982. In most countries the markets have little depth and are closed to foreign investors. Since 1998 there have been some efforts to use the markets to improve privatization efforts. Foreign investors have been welcomed in some bourses, such as those of Egypt, Lebanon, and Israel. However, most other markets have limited foreigners to investment through small mutual funds managed by local banks, as in Saudi Arabia. The Saudi market has the largest capitalization of the Arab world, at about US$100 billion.
Bahrain
The market in Bahrain is still very small and highly regulated. However, it is beginning to open up to foreign investors if they reside in Bahrain. Each foreign investor is limited to a maximum 1 percent stake in a company. If markets become more deregulated in Bahrain and if Saudi Arabia—the main center for private industrial ventures—approves, this stock market could become an important place for Persian (Arabian) Gulf industries to raise capital.
Iran
In the liberalization of 1992 the Iranian stock market was expected to be the transmission belt between Iranian capital at home and abroad and the companies to be denationalized. Foreign capital was permitted to buy minority positions. However, the move toward liberalization seems to have stalled, and the market is not very active.
Israel
The Israeli stock exchange is located in Tel Aviv. It lists about 654 companies and has a capitalization of US$41 billion. The market is open to foreign investors. Technically, the market is quite advanced, with computer support similar to that of U.S. markets. However, volumes traded are relatively low, in the average range of $36 million per day in 2002. The market tends to be somewhat volatile due to the
| country traded | number of companies | capitalization (in millions of u.s. $) |
| source: Zawya, online at http://www.zawya.com; Tehran Stock Exchange, online at http://www.tse.or.ir; Istanbul Stock Exchange, online at http://www.ise.org; Tel Aviv Stock Exchange, online at http://www.tase.co.il; Middle East Economic Survey ; Saudi Arabian Monetary Agency, online at http://www.sama.gov.sa | ||
| table by ggs information services, the gale group. | ||
| israel | 617 | 40,900 |
| turkey | 262 | 33,800 |
| saudi arabia | 68 | 100,000 |
| kuwait | 93 | 35,100 |
| jordan | 76 | 1,664 |
| iran | 324 | 65,000 |
| egypt | 1,110 | 18,400 |
low number of buyers and sellers. The progress of the markets is marked by the TASE index.
Jordan
The Jordanian market, which was started in 1977, is still small in terms of volume but has a good reputation among investors. Foreign investors need to be approved by the government, which greatly limits the liquidity of the shares and the potential growth of the market.
Kuwait
Until 1982 the Kuwaiti capital markets were the largest in the Middle East. After the crash of the Suq al-Manakh, the government enforced old regulations and introduced new ones. The number of brokers, the number of companies eligible to be traded, and the daily volumes are limited. The 1991 Gulf War, which caused many industrial companies to disappear, limited the number of tradable issues to the financial institutions. Kuwaiti-owned companies based in Bahrain and elsewhere in the Gulf also are traded. No foreigners are allowed to trade in Kuwaiti shares, except Gulf Cooperation Council nationals.
Saudi Arabia
Saudi Arabia, despite having the largest volume of shares traded in the Gulf, does not have a stock exchange or trading floor. All shares are exchanged and cleared through the banks. To have shares traded, companies must be registered as Sharikat alMusahama, a registration somewhat similar to a U.S. Corporation C. To obtain this status, companies must be vetted by the Saudi Arabian Monetary Agency and, until 1992, also needed approval by the king. Only firms not involved in defense or oil are allowed to register. Thus, Saudi firms have a very difficult time raising money directly from the public through the stock market. No foreign capital is allowed to trade in Saudi shares, except in limited circumstances if originating from within the Gulf Cooperation Council. Since 11 September 2001, the Saudi stock market index has become more popular. The number of shares traded has increased from 691 million in 2001 to 1736 million in 2002. In an overall declining world market, TASI, the Saudi stock exchange index, increased 5.7 percent between 2001 and February 2003.
Turkey
The stock exchange in Turkey got its impetus from a 1989 law on investments. The law strongly restricts insider trading, provides for proper financial reporting by companies, and authorizes foreigners to invest. By 1993 the Turkish market had become one of the leading emerging markets, with investments from many U.S. and European mutual funds.
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