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Wed 5 Jan 2011 01:36 PM

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Gulf foreign investment falls on poor regulation

FDI split across the region with highs in Qatar, lows in Dubai, says KFH

Gulf foreign investment falls on poor regulation
GULF INVESTMENT: In order to lift foreign investment in the Gulf in the coming year, Raghu said proper regulation and research was crucial

Lack of proper research coverage coupled with fallout from
the economic downturn led to a major disparity in foreign investment in the
Gulf countries in 2010, with a high of 25 percent for Qatar and a low of -11
percent in Dubai.

“Foreign investment in general
has come down in the GCC because of the financial crisis and the region was
never part of mainline emerging market index,” MR Raghu, head of research at
the Kuwait Financial Centre, told Arabian Business.

“After the financial crisis a
lot of [would-be GCC] investors have reduced their off-index bets and started
focusing on the main line.”

In order to lift foreign investment
in the Gulf in the coming year, Raghu said proper regulation and research was
crucial.

“In the long term, there has to
be a properly regulated environment, market laws, excellent trading systems,
plus a very good information flow and coverage on the region for investor
access,” he said. “Currently the research coverage on stocks is extremely poor.
Only 10 to 15 percent of companies have research coverage in the region..

“You need good regulations, good
research and governance for these markets. Then foreign investors would start
queuing up. Three years after the [start of the] financial crisis we definitely
see banks coming back, positive growth. We see an attractive growth.”

Meanwhile, 2010 “simply lacked
triggers,” Markaz said in a report. “Negative factors which moved against our
estimates came from Dubai, where the continuing debt and corporate issues have
brought down market performance.”

The analysts’ positive outlook
on Saudi Arabia “failed to materialize as the market mainly traded sideways on
lack of catalyst while the banking sector showed increased prudence with a
virtual halting of lending activity, which fed a sense of uncertainty among
investors.”

In Kuwait, they were neutral.
Factors there included “low liquidity, regulatory and geopolitical ambiguity
and lackluster investor sentiment… positive factors were economic indicators
and earnings potential as we saw 2010 being a turnaround story for the
country’s main sectors.”

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