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20-TRE164-Trends Russia

Ranvir Nayar takes a closer look at how GCC’s stock markets are behaving

May 17, 2012 3:32 by

Stock markets are supposed to be in tandem with the economy, often lead­ing the economy in expectation of its per­formance. And 2011 was a year of very healthy growth for all Gulf Cooperation Council (GCC) countries, with the average growth in GDP for the region exceeding six percent. Some countries, such as Ku­wait, growing at 18 percent, while the larg­est economy in the GCC, Saudi Arabia, registered a growth of six percent, with the UAE following closely behind. However, GCC stock markets all declined in 2011. As a whole, the market capitalization of the GCC stock markets stood at $697bn, loss of seven percent compared to the year before, and the volumes crashed by 21 per­cent in the same period. While markets in Bahrain and Kuwait – both countries hit by political turmoil and instability – crashed by nearly 20 percent each. The perfor­mance of the Saudi bourse was much bet­ter in comparison, declining marginally by three percent only. Not surprisingly, the Initial Public Offering (IPO) activity in the market also remained extremely subdued, as sluggish market sentiment discouraged companies to approach the bourses. As a result, the year saw only nine flotations, with an aggregate value of $795.6 mil­lion, a hefty decline of nearly 55 percent compared to 2010.

Now, contrast that with the predic­tions for the regional economies for the year 2012 and the performance of the stock markets.

In 2012, economic growth is sup­posed to slow down, with regional growth of less than five percent, even though the oil prices

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