| Kippreport.com

Bahrain unrest may impact region, finance hub

February 16, 2011 3:43 by Reuters

Bahrain may be tiny, and fairly insignificant as an oil producer, but nearly $10 billion parked in mutual funds in the kingdom mean plenty is at stake if protests inspired by Egypt and Tunisia spiral out of control.

It is the Gulf Arab state seen as most vulnerable to unrest because of deep-rooted discontent among its majority Shi’ite population against the ruling Sunni dynasty, the al-Khalifas. The populace complains of economic hardships, lack of political freedoms and discrimination in jobs in favour of Sunnis.

This has always sat awkwardly with its status as a regional banking, trading and Islamic finance hub, but its advantages, as a diversified economy and relatively liberal society, have outweighed the risks — thus far.

“If you’re trying to set yourself as a financial hub you need to provide security and stability above all else,” said Sven Richter, managing director and head of frontier markets at Renaissance Asset Management.

So far there is no sign of money leaving. The stock market is flat this week and funds say they are still waiting to see how protests, in which two people have died this week, play out.

Speaking on Wednesday, Abdulrahman Mohammed al Baker, chief of financial institutions supervision at Bahrain’s central bank, said protests would not impact the economy or financial sector.

“It’s a democratic way of doing things. It has nothing to do with the financial sector,” he said.

“Investors are not worried.”

Markets are open and banks are functioning as usual on the island, home to 1.3 million people, half of whom are foreigners.

Yet the cost of insuring Bahrain’s debt climbed to its highest level since August 2009 with 5-year credit default swaps rising 13 percent in two days to 275 basis points.

Investors are watching the situation closely.

In Saudi Arabia, connected to Bahrain via a causeway, the main share index fell 1.2 percent on Wednesday.

Aqber Naqvi, a fund manager with Al Masah Capital in Dubai, said he could consider changing his exposure to Bahrain if the unrest grew: “If there is traction to these protests, we might take a call,” he said. “But as of now it’s too early to say.”

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Tags: Bahrain, Bahrain economy, bahrain financial hub, bahrain protests, bahrain resources, bahrain unrest, Bahrain uprising