Gulf money markets have grown reasonablywell during the past decade, but bond and stock markets remain
to a large extent fragmented and lag behind, &lt;Gulf
International Bank BSC> (GIB) said.
    The bank's economist Henry Azzam said in a review of Gulf
capital markets that investors have to relinquish traditional
investment vehicles such as real estate, foreign currency bank
accounts and precious metals.
    "Greater financial sophistication is needed coupled with
more diversified capital market instruments and a change in the
disclosure requirements on company accounts," he said.
    The GIB study reviewed capital markets under three
categories -- money markets, stock and bond markets.
    Azzam said Gulf states had been making greater use of
short-term money market instruments and banks in the region had
floated various euronotes and underwriting facilities.
    "Nevertheless, bond and stock markets remain, to a large
extent, fragmented and lagging behind," he said.
    Most debt in the region is still raised by syndicated loans
and bank facilities and very few companies had made use of
stock or bond issues. Only Kuwait has an official stock
exchange, while other Gulf nations have yet to establish
exchanges.
    But with dwindling financial surpluses in the Gulf,
governments are actively pursuing ways to develop capital
markets and set up domestic stock exchanges, Azzam said.
    He said recession stemming from sliding oil prices had
"clearly had a negative impact on the development of capital
markets in the region."
    In addition, family firms are reluctant to go public,
financial awareness among investors is still lacking and
investment analysis and corporate reporting standards lack
depth. A sharp fall in share prices in the early 1980s prompted
investors to hold on to shares hoping for an eventual recovery.
    Azzam said the absence of proper commercial law in some
Gulf countries and authorities' apparent reluctance to adopt
financial innovations had also hampered capital markets.
    He called for clearly defined laws governing incorporation
of joint stock companies and the flotation of debt instruments.
    Azzam said capital market instruments should be made
available to all citizens and institutions of Gulf Cooperation
Council (GCC) states -- Bahrain, Kuwait, Qatar, Oman, Saudi
Arabia and the United Arab Emirates (UAE). Some moves had been
taken in this direction, with Bahrain allowing GCC nationals to
own up to 25 pct of locally incorporated companies.
    Azzam said Gulf money markets had received greater depth
from the introduction of treasury bill offerings in Bahrain and
the expansion of securities repurchase regulations in Saudi
Arabia.
    But he added there is "no bond market to speak of" in Saudi
Arabia, Qatar, Oman or the UAE, with the last Saudi riyal
denominated bond issued in 1978.
    While Bahrain plans an official stock exchange and trading
in Saudi Arabia has picked up, establishment of formal
exchanges in Qatar, Oman and the UAE does not appear imminent,
Azzam said.
 REUTER
