Tuesday, Feb 23, 2016
Abu Dhabi: The slowdown in global economies coupled with lower oil prices is expected to dampen the momentum of secondary markets in the Arab world, translating to lower IPO (Initial Public Offering) activity, according to a spokesman from the Union of Arab Securities Authorities.
“I don’t think this is the time for IPOs to flourish. However, with future changes in circumstances of world economies and the improvement that might happen in prices of commodities and oil, that will definitely affect markets and in turn, the IPOs in the region,” Jalil Tarif, secretary general of the Authorities, told Gulf News.
Tarif said he did not have projections for oil price movements, but expected Arab markets to react to changes in supply and demand.
“I think when we reach a point where investors believe it’s a good time to buy, they will enter the market… You can’t really decide to what extent prices have already gone down compared to how much they are yet to fall because that will be decided by many factors including investor sentiment,” he said.
Earlier this month, the head of the Securities and Commodities Authority (SCA), the UAE’s market regulator, told reporters he expected to see some IPO activity in the UAE this year.
Analysts have long said, though, that 2016 is expected to be even more challenging than 2015 as oil prices, geopolitics, and the overall macro-economic environment continue to weigh on investor sentiment.
Once Arab markets do pick up, however, regulators will need to boost their infrastructure by looking at factors like corporate governance, and transparency and disclosure.
Tarif said a lot can still be done, especially in corporate governance as it was not enough to merely adopt a code of corporate governance. Regulators in the region need to ensure listed companies have a high rate of compliance and are following the disciplinary rules.
“Corporate governance is one of the main issues that was really raised in 2008 when the financial crisis happened, and part of the crisis had to do with a lack of corporate governance and corporate governance implementation.
I think there are a lot of positive indicators in the GCC and beyond the GCC in the Arab world… but we encourage more countries in the region to put more efforts on assessments of compliance with corporate governance,” he said.
Discussing performance of stock markets in the Arab world in 2015, Tarif said that trade was impacted by news from the US Federal Reserve on interest rate hikes, economic data from China, and slowdown in global economies.
“The market capitalisation in Arab markets in 2015 declined by about eight per cent, and more importantly, we saw a sharp decline in trade volumes of about 40 per cent compared to 2014.
However, I believe this is normal when you have international financial crisis, which will naturally affect the region… and I think the market is now discounting these factors worldwide,” he said.
The Union of Arab Securities Authorities is an alliance of market regulators in the Arab world. It currently has 15 active members, which include the UAE, Saudi Arabia, Oman, Qatar, Kuwait, Egypt, and Jordan, among others.
By Sarah Diaa Staff Reporter
Gulf News 2016. All rights reserved.
