The Arabian Gulf is looking with envy at the newly established Asean Trading Link, as GCC investors worry that regional stock exchanges are getting left behind.
Asean stock exchanges provide role model for Gulf
Middle East banks and exchanges say a plan by the Association of South East Asian Nations (Asean) to consolidate their exchanges could offer a model for the Arabian Gulf as it struggles to attract stock market investment.
Last week, the Singapore Exchange and Bursa Malaysia linked their exchanges through a cross-border trading platform, which the Stock Exchange of Thailand is due to join next month. The Asean Trading Link, as it is known, will eventually grow to include Indonesia, Vietnam and the Philippines.
"We are now creating more investment opportunities across this region and it will spur liquidity," Tajuddin Atan, the chief executive of Bursa Malaysia, told Bloomberg News.
The stock exchanges of Asean countries had 3,613 listed companies with a market capitalisation of US$1.9 trillion (Dh6.97tn) as of the end of March, about two thirds the market value of stocks listed on the Hong Kong Stock Exchange.
In linking their exchanges, Singapore and Malaysia have already leapfrogged the entire Gulf region in creating a single market with a capitalisation of $1.02tn and a single entry point, compared with the $734.9bn value of companies trading on the Gulf's eight stock exchanges. The fragmentation of exchanges was one of the major causes of low liquidity in the Gulf, said Jakob Beck Thomsen, the chief executive of Saxo Bank Dubai.
"There are too many exchanges in this region," he said.
"Consolidation would increase volumes. It would increase the ways companies can raise capital … there's no doubt it would have a positive effect."
The Asean Trading Link, which has not required a formal merger of exchanges and preserves their national identity, has caught the attention of local bourses.
"It's very interesting," said one Gulf exchange official who asked not to be identified. "But we're a few years off that yet."
The challenges are more technological than political, the official added.
The approach Asean has taken could present a model for the Gulf to follow, said Mark McFarland, the chief investment strategist at Emirates NBD.
"It's in the interest of the region to consolidate markets, the sooner the better," he said.
"If you're large and more visible, then probably you'll receive more allocation [from investors]."
The difficulty in building consensus among policymakers in the Asean region, where countries are at different stages of development, has hindered the launch of the trading link-up for some five years.
"The process is long and not easy at all," said one diplomat from an Asean nation, who asked not to be identified.
"Within Asean it's taken years. But if we integrate ourselves, we become a much more attractive destination for businesses."
Amid a drought of trading activity in the UAE since the outbreak of the global financial crisis, more than half of the brokerages listed as active by the Securities and Commodities Authority a year ago have now ceased trading operations either temporarily or permanently.