Middle East and Africa: Gulf overspill

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Surplus liquidity from the Gulf is finding its way into the Middle East and Africa, finds Paul Allen.

This article appears courtesy of Global Investor.

Market growth will continue to be a feature of the Middle Eastern markets in 2007, according to Arindam Das, senior vice president, Middle East with HSBC Securities Services.

"In Jordan, we are witnessing growing interest from our international clients, as the markets have undergone a correction that has made valuations more attractive, coupled with the fact that some of the surplus liquidity in the Gulf is finding its way into the Middle East and North Africa region", he says.

"Increasing activity in the capital markets, be it IPOs leading to new listings, or greater integration with the Gulf markets – such as the link set up recently between the Jordan Stock Exchange and Abu Dhabi Stock Market, and the influx of Gulf capital into Jordan – will add to the depth and breadth of the stock market, as well as increase institutional participation in the market," says Das.

In addition, the country's privatisation programme will help in bolstering further activity in the investment banking and capital markets space, which custodian are watching with keen interest.

Egypt

Meanwhile, Egypt already attracts significant interest from foreign institutional investors, and this is expected to continue through 2007, according to Das. "We are also starting to cater to regional institutions investing in the local market," he says, adding that Egypt is HSBC's largest sub-custody market in the Middle East, and the bank is one of the largest sub-custodians for foreign investors.

At a structural level, the Egyptian market is planning several new initiatives, says Das, such as opening a separate market for small companies, as well as introducing stock lending and margin trading. However, discussions on these projects have been underway for some time, and when they will actually be implemented remains unclear. "We are following these closely and will launch suitable products to cater to the opportunities that arise as a result," notes Das.

Another issue gaining increasing prominence in the Egyptian market is corporate governance, which is likewise expected to make the market more attractive to institutional investors. "This is a regional trend. Across the Middle East regulators and stock markets are focussing on greater corporate governance and disclosure of information to make the markets more transparent and in line with international markets. This trend is likely to continue, as an increasing number of issuers in the Middle East seek to attract investment capital from overseas."