The Gulf region has been reeling from the impact of the Arab Spring protests and this volatility has been reflected on stock markets across the peninsula. The total volume of trading across the Gulf Cooperation Council (GCC) tumbled 21 percent to 133.8 billion shares last year. At the same time, the value of shares raised through company listings fell even further and was down a massive 55 percent.
The sluggish trading environment has led some analysts to speculate that now might be time for the regional bourses to consider merging and creating one large Gulf-wide entity. One man who has had plenty of experience in cross-border mergers is Andre Went, the CEO of Qatar Exchange (QE).
Before taking up his position in Doha three years ago he worked for NYSE Euronext — QE’s partner — for 20 years and was involved in helping to integrate the European Union’s national bourses.
So does he subscribe to the thinking that the GCC bourses should move closer together? “Ultimately and potentially yes,” Went begins. “I’ve been asked this before and one of my activities with NYSE Euronext [QE’s partner] was to work on the European integration… so I have seen many angles and many ways to start.”
Prior to 2011, talks over a central bank and a common currency appeared to fall off the main radar, but the GCC is now showing signs that it is interested in closer financial links, most evident in the recent establishing of a committee to manage the setting up of a customs union. While closer consolidation is a product of the Arab Spring movement, Went says further formal links for the six regional bourses are still a long way down the current agenda.
“For the time being, there are more important priorities and I think markets focus on their open development before they start looking at cross-border combinations.
“It is more important to start harmonising regulation rather than harmonising trading... The key thing for exchange consolidation is regulation, the regulators need to provide cross border access.
“As long as you are restricted to your own country it doesn’t make sense for exchanges to consolidate,” he adds.
“The true facilitator starts with market demand; there must be demand from investors to look at the region in an integrated way,” Went believes. “Then the regulators should start facilitating that… Basic things like harmonising trading days and trading hours. All of those things will help presenting a region as one entity to the investors.”
Therefore, the real question is whether there is sufficient investor appetite in place for such a move to be worth considering? “The investors would like to see the region as a GCC region but there is still too much differentiation. There is no easy access for foreign investors at all.”
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Another important factor is the political angle and whether authorities want to relinquish control of their national bourse to a pan-Arabian entity, potentially based outside the country.
“It is probably one of the factors that will play a role… it was the same in Europe,” Went says.
A case in point was the political fallout three years ago when GCC leaders chose Riyadh as the headquarters for the Gulf central bank and UAE was allegedly so upset it pulled out of the monetary union.
A senior executive at PricewaterhouseCoopers (PwC) said the consolidation of the region’s stock exchanges would help improve liquidity and activity for capital markets.
“I think consolidation would help because it would provide that size and liquidity factor, which would help traded volumes,” Steve Drake, PwC’s head of capital markets Middle East said last year.
“Clearly there are political motivations as to why exchanges stay country specific and in some places city specific, as in the UAE,” he added.
However, Went believes that “rather than giving up control of the exchange it is more interesting to look at what the investors need and how you can help the listed companies in their cross border access.”
According to a report by Global Investment House (Global), political tension that spread throughout the Middle East added to the markets’ woes last year, and most GCC bourses ended 2011 on a lower note. Or, at least, all but one: Qatar.
“We had a strong increase in 2010 and a more modest increase in 2011 but it was still positive,” Went says. “I think the strength of the economy is already reflected in the performance of the exchange.”
Looking to 2012, he is equally positive of the outlook. “I would hope to see a further reflection of the strength of the economy in the exchange. We know there are a lot of projects being awarded and hopefully that will further advance the development of the market and, with that, it would be nice if the trading volumes picked up.”
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One area likely to come on stream, which should help to be a catalyst for more trading, is the development of a bond market in Doha.
“We are also developing a bond market… We would expect corporate bonds to be included in this plan. At the end of the day, it is up to the issuers. We are ready for it… we started T-Bills (Treasury Bills) in December so it is really up to the issuers.”
With growth in the sector, Went is pleased to see that the number of brokerages in the country is also on the rise. “In Qatar we used to have seven brokerages and we have been active in trying to increase that number... Now we have ten and soon we will see eleven.”
Qatar will certainly be hoping that the increase in manpower will help boost the IPO market in the country. While only nine GCC companies offered their shares to the public last year, with an aggregate value declining year-on-year 54.9 percent to $795.6m, in Qatar the situation was even more sluggish. “In terms of IPOs last year it was slow, as there were none,” Went says matter-of-factly. However, he is confident that is all set to change.
“We do see a strong pipeline and there are a number of companies we talk to on a very regular basis — our IPO clients — and I’m sure in a reasonable timeframe they will approach the market.
“It is same as always, there are a range of reasons for companies to list: to attract new capital or to find new growth. It is also a way for existing investors to make their investment more liquid.”
The partnership between the Doha Securities Market and NYSE Euronext — with Qatar retaining an 80 percent share — began in 2009 and the new entity rebranded as Qatar Exchange put into place a three-part plan under Went’s leadership.
“Phase one is the reform of the cash market,” he says. “Phase two is the emergence of the derivatives exchange… Phase three is more of the international business development.
“So it is very clear how we want to develop the exchange and move forward as a company. It is a five-year strategy so we are about halfway through, almost three years.
“We have done the things we wanted to do [in phase one]. In about June this year we will be able to implement a number of more measures… Then we will see if the market is ready for derivatives. It was not as easy as in 2009 and [the financial crisis] is clearly not over yet.”
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A recent development has been the setting up of the QE Venture Market, which put in place the necessary infrastructure to list and trade the securities of small and medium sized enterprises in Qatar.
Unlike the Main Market, which is designed for larger companies with established track records, QE Venture Market is designed with smaller companies in mind.
“SMEs are already recognised in Qatar as a key element in the success of a growing and healthy economy. With the addition of the QE Venture Market to our product suite we are providing young and entrepreneurial companies a customised route to market to ensure they have access to the necessary funds to contribute to Qatar’s economy,” Went says.
“The design of the market was finalised towards the end of last year and the listing rules and trading environment website was finalised. We had a workshop early this year for market professionals and we are engaging with potential listing candidates in a number of organisations.
“We are developing the listing pipeline and once we have a number of companies ready to list we will launch into the market.”
Looking to the future, where does the Dutchman see the bourse in ten years time? “We should have a significant number of companies listed... We have 42 now. Equities derivatives should be launched by then… We should have large bonds and further product diversification and be able to attract some dual listings, especially from the IPOs,” Went forecasts.
With Qatar currently one of the economic powerhouses in the region, his forecasts look pretty solid.
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