Regional equity markets 'will bounce back'
Manama, March 3, 2011
Political unrest and change across the region will have an effect on the economy and markets, but markets could quickly bounce back and return to normal, experts said.
The effects of the 2006 stock market crash in the region and the global financial crisis of 2008 were far bigger dampers on the economy than recent events, according to speakers at a session looking at the latest political developments across the region - from Egypt to Bahrain.
Panellists at the Capital Markets and Investor Relations Conference at the Ritz-Carlton Bahrain Hotel and Spa said yesterday that equity markets will return to normal soon.
'It is difficult to say what will be the impact on equity markets but history tells us any effect can be exceptionally short in a situation like this,' said Securities & Investment Company chief executive Anthony Mallis.
'Two years ago Thailand was in turmoil but its markets bounced back like a Phoenix. We have seen similar scenarios in Indonesia, Brazil and Turkey.'
'People regard Turkey as stable today but 15 to 20 years ago they were shooting people in the streets in Istanbul. Memories can be very short when it comes to money.'
He said there was a political premium in any equity markets. While recent events may have seen local markets fall, the US reacted to Barack Obama's reforms, while in the UK, the political premium was tax policy.
Bank lending was down in the region but this was perhaps a short-term blip, he said, pointing out that lending had been pretty much on hold since 2008.
'Bahrain, Kuwait and Saudi Arabia have made commitments to provide the local population with support and guaranteed subsidies. That means the circulation of money will expand.
'The regional economies will have slowed down because of uncertainty.
'There is a huge amount of money going into the regional economies from government spending and subsidies,' he said.
Saudi Arabia announced spending worth $33 billion last week. It may be by far the biggest state in GCC but is a relatively small country. With a population of just 25 million of whom only 60 per cent are locals, that is a lot of money.
'In the longer-term, GCC is a capital surplus region. Its surpluses generated are equal to that of China, so foreign investment is not essential to fund growth but it is important to bring in foreign investment because with that money tends to come discipline and governance issues.'
Citi MENA head of equity research Hasnain Malik said the unrest was just one of the factors that could adversely affect investor sentiment. 'Foreign investment here is always marginal compared to funding from sovereign wealth funds, banks and high net worth individuals.
'Stock markets here are normally minor in any global investment portfolio and tend to be driven by risk appetite driven by global rather than regional issues.'
Rasmala head of brokerage Khaled Masri said while markets started the year with a good head of steam, recent events had taken their toll. But he said at this time the regional markets were not really cheap for investors.
NCB Capital senior fund manager Mohammed Al Grenees said: 'We have seen some selling pressure but nothing compared to what happened in the crash of 2006 or the turndown in 2008.'
The panel agreed that while markets would recover, it would be some time before they returned to 2007 levels and longer before they generated that level of business.-TradeArabia News Service