x Abu Dhabi, UAEFriday 19 January 2018

GCC markets weakened by lack of transparency: study

Report says major institutional global investors steered clear of these markets, leaving far fewer investors to trade.

A lack of transparency and poor corporate governance are among the main reasons for the low level of trading activity in GCC equity markets, where more than half the listed companies' shares do not trade on many days, according to a study. Few companies hold regular meetings with analysts, publish annual reports in English - the accepted language of global investing - or even tell investors when their earnings results will be released. The result, the authors said, was that major institutional global investors steered clear of these markets, leaving far fewer investors to trade.

"In well regulated mature markets, most companies' stocks are traded every day," said Amer Halawi, the head of research at the National Investor, which oversaw the study. As GCC countries and especially the UAE seek to attract foreign investors, adopting corporate governance practices of mature markets has become an important issue. The decline in the shares of UAE property companies and the arrest of executives in Dubai underscored the weariness of foreign investors and the lack of transparency in the country.

Mr Halawi said that companies could improve significantly by adopting basic practices such as creating websites, hiring translators to accommodate foreign investors and simply informing the public about their calendar. Only two per cent of companies hold analyst meetings, while 91 per cent do not give any notification of the date of the publication of their results; 32 per cent do not publish their annual reports in English - this number rises to 68 per cent among Saudi companies and 60 per cent among Kuwaiti companies; only 23 per cent pre-announce their annual general meetings; and 19 per cent of companies have no websites.

The year-long survey of GCC companies examined nearly 25,000 pages of documents and considered trading history, corporate communication and disclosure practices. The GCC's overall score stands at 3.57 out of 10. Mr Halawi said a similar examination of companies in mature markets would render a score twice as high. Omani and Bahraini markets received the highest scores, followed by companies traded in Abu Dhabi, Qatar and Dubai.

Saudi and Kuwaiti markets received the lowest score owing much to unwillingness of many companies there to publish reports in English. In fact, nearly all the 10 companies that received the lowest scores are Kuwaiti firms. Nasser Saidi, the executive director of Hawkamah and the chief economist at Dubai International Financial Centre, said that most companies scored close to their national score. In examining different sectors, the banking industry received the highest scores followed by utilities and telecommunication firms, while property, manufacturing and services received the lowest.

On scoring their communication and disclosure practices, Abu Dhabi companies receive the highest scores followed by Bahraini and Dubai firms. Mr Halawi said the study did not look at possible fraud at any company. He admitted that Enron, a company that fraudulently fixed accounting books until its collapse in 2001, would have received good marks on his study. Good corporate governance, however, would raise the confidence of investors and better practices would attract more investment from international banks.