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Summary The Gulf cooperation council was formed in 1981, and it included Middle Eastern countries that were mostly found in the gulf region but not all of them, since Yemen is not included here. The stock exchange in this region that is termed as the GCC has seen an improvement in its performance in the past ten years. Even after the global recession hit, the GCC stock market was not adversely affected, as we saw in other areas such as the US. Saudi Arabia, which is one of the largest economies in the GCC, showed an increased market capitalization to gross domestic product ratio that was almost measurable to those of developed and stable economies. These markets are also dependent on oil; however common macro-economic factors such as the US Treasury bill rates have been found to affect the performance of the market. This is because the GCC countries’ currencies are in one way or the other linked to the US dollar. Liquidity and decline in interest rates are also known to affect the performance of the GCC stock market, as well. 1 Introduction The Gulf cooperation council includes countries in the gulf region that deal with petroleum. These countries include – the United Arab Emirates, Bahrain, Oman, Qatar and Saudi Arabia. Over the past couple of years, the GCC stock market has grown tremendously in terms of market capitalization and trading turnover. Investor interest in the GCC stock market has also increased significantly, and this is seen in the GCC market indices. Over the ten years, the gulf cooperation council stock market has been significantly influenced by three main factors. These factors are the high oil prices, abundant levels of liquidity in the region and the decline in the interest rates. GCC countries have over the past ten years taken steps towards developing their capital markets; this has seen most of them develop new regulations to facilitate this growth. Over time, these regulations have been able to strengthen the transparency of these stock markets thus increasing their efficiency. The ripple effect of this healthy economy among the GCC countries is that, the number of listed companies in the stock market of each individual country, has increased. These stock markets have individual life lines and trends. This is illustrated by the difference in their performance since the year 2000. The difference in their performance is attributed by their varied sensitivity to international prices such as the prices of basic commodities and the rate of international investments in the individual countries. 2 Influence of oil prices on the GCC stock market performance From the year 2002, the oil prices have been increasing rapidly, and this as changed the economies of oil producing countries more so the ones in the Middle East like UAE, Bahrain, Kuwait and Saudi Arabia which are also a part of the gulf cooperation council. The performance of the GCC stock market is both strong and different, and the high oil price is one of the factors that have led to this. Oil is a major motivator for the trends and indices on the GCC stock market since the GCC countries are major suppliers of oil in the world energy market, and all these countries collectively possess forty seven percent of the world’s proven oil reserves (Dr. Hakim, pg. 1-7). It is a well-known fact that oil revenues are major components of aggregate demand in these countries. This aggregate demand is what influences corporate activities, such as investments, as well as influencing the domestic price levels of basic commodities, which in turn affect the corporate earnings and trend that the stock prices would take. As much as most of the GCC countries have tried to diversify their economies, they are still highly dependent on oil. This has seen countries such as Saudi Arabia witness an economic boom since the year 2006 as other parts of the world were on recession. 3 Abundant Liquidity and its influence on GCC stock market performance Diversification of the economies has not been overly successful in the GCC countries. This limited diversity and the excess liquidity like easy availability and accessibility of liquid cash has favored the increase in the stock market that, has led to the markets experiencing a lot of activities. Dr. Hakim estimated that the domestic liquidity of Kuwait, Saudi Arabia, Bahrain and Oman from the year 2002-2005 increased by 50 %, 65 %, 50 %., and 36 % respectively. This is attributed to the rapid demand for credit and the improved access for finances for corporations, facilitating the strong growth in investments that has led to the upward surge of the stock market. This excess liquidity has led to the increased supply of money in the economy that, has led to the increased number of listed companies in the GCC stock markets, in all the countries that are involved, because of the need for investors to create more wealth. The economic boom in these countries that are dependent on petroleum for the countries’ revenue have also seen an improved performance in the stock markets. The increased money supply that has been coupled by the strengthening of the currencies of these countries namely; the Riyal and the Dinah, against major currencies, such as the dollar and the pound, has also influenced the significant development of the stock market in GCC countries over the past ten years. The liquidity of the three largest economies among the GCC countries that is – Saudi Arabia, United Arab Emirates and Kuwait, has shown the positive correlation between the importance of oil, and the prices of the stocks in the market. 4 Influence of declined interest rates on stock performance The decreased interest rates in the stock markets of GCC countries have been attributed to the sensitivity of the GCC to the US Treasury bill rates. These are I turn affected by the economic positioning of the country whether it is experiencing a boom or a recession. The GCC countries are, however, not overly affected by the international prices of other stock markets and their performance. The only reason that it is affected by the US Treasury bill rates is because these countries fixed their currencies to the United States dollar years prior. As a result of this, the GCC stock market became sensitive to global factors, such as the mentioned US Treasury bill rates and the oil prices that they have to adhere to. Most of these countries had their national currencies fixed to the US dollar either directly on a one to one basis or through a basket of currencies hat were dominated by the dollar. For Saudi Arabia, as much as the number of companies that are listed in the stock market are slightly over eighty which is not such a big number compared to other developed countries, it has still taken off vigorously due to the fast developing of the capital market. This market is seen to be relatively expensive. The amounts of shares that have traded yearly since the year 2002 have seen a steady rise for the past ten years. The value of these stocks has also increased over the same period. The reason for this, has been attributed to the increase in investor awareness, and regulations that were formulated that made the investment into the stock market easier, and more conducive even for foreign investors. The share prices in the Saudi market started to decrease from the second quarter of the 2006 financial year; however, this did not have a significant influence on the real economy of the country. As of November 2008, the GCC market saw the worst performance since its inception. It dropped by $127 billion which was the lowest that it had ever got to in 5 the previous four years (Sambidge). This decline in the stock market was observed through the remaining part of 2006 to the early part of 2007 when it managed to stabilize substantially. This short term diversion in the stock market, did not serve to make the investors panic, but rather they held their ground since, they observed that the downward trend did not spill over into the non-financial market, which meant that the probability of recovery were higher. The fact that, most of the investors in the market were strategic investors who were not fazed by the momentary fluctuation in the market, was also an added advantage that made the GCC stock market stay afloat until it stabilized. 6 The GCC Stock Market Most of the stock markets in GCC countries experienced an increase in the rate of market capitalization to gross domestic product of the country in question which when compared to those of other developed countries, such as the United Kingdom and the United States, they measured favorably. After the 2006 down turn, the market especially for Saudi Arabia and UAE stabilized as from mid-2007 and the trend was maintained through the recession. As a matter of fact, the market has seen been able to recover. This recovery has, however, been affected by the growing political and social unrest in the region. The GCC stock market has not been affected greatly by this unrest; however the Bahrain stock market has not been able to have the same positive trend as the other countries. Ratio of Stock Market Capitalization as % of GDP 2000 2001 2002 2003 2004 2005 2006 2007 Kuwait 53.46 78.07 98.64 127.95 124.20 158.6 104.8 106.2 Bahrain 82.81 83.96 88.86 100.10 121.65 130.04 134.17 150.5 Oman 25.48 22.57 25.62 33.52 37.55 49.79 44.8 65.8 Saudi 36.09 40.07 39.72 73.31 122.39 210.04 93.6 136 UAE 31.09 40.16 51.85 55.82 91.69 132.53 65.8 129 Qatar 29.28 42.64 53.18 113.47 127.32 205.13 115 134.5 Source: Gulf Investment Company (GIC), 7 250 200 Kuwait Bahrain 150 Oman Saudi 100 UAE Qatar 50 0 2000 2001 2002 2003 2004 2005 2006 2007 The stock markets in the GCC countries, just like those in other counties, has seen the stocks in the market fall tremendously and with the political and social unrest in the middle east, the fall has been even more pronounced in some of the GCC economies. These recent price falls have led to the overselling of stocks in the GCC market. The year 2012 as been especially trying for this market, the performance of the GCC stock market has been below average. Saudi Arabia and Kuwait have been among the worst hit, and their markets have seen a fall of up to 5 % each (Sbeiti & Alshamari). This is a significant fall in performance. Bahrain, whose stock market has been performing badly over the past year it only experienced a 1.25 % fall in its stock index. This situation in Bahrain is bound to deteriorate since there is a complete lack of liquidity in stock this means that many stocks in this market did not trade at all. 8 Conclusion The GCC stock market saw an upward trend in its performance from the year 2002 to the year 2006. In the mid-2006, the performance of most of the markets that are GCC countries experienced a decline in the performance; however the market started to improve in the mid-2007 and the trend stabilized for the better part of the next three and a half years when the recession hit and this affected the market performance with Bahrain being the worst hit. The political and social unrest in the Middle East also did not help the situation much, and in 2012, the stock market indices for these GCC countries, fell tremendously. The performance of the GCC stock market has been influenced by three major factors since, its inception in 1981. These factors include: the oil prices. The GCC countries are mostly dependent on oil for their revenues thus the oil prices affect the stock prices and thus the stock performance. Liquidity of the countries also influences the performance of the stock market. The increased liquidity leads to the increase in the number of investors and investments in the stock markets that increased the stock indices. The third factor influencing the stock performance s the decreased interest rates in the market that were influenced by the US Treasury bill rates. A lot of researches have been decided to The GCC Stock Market and its performance. They are need for covering several aspects of the market like short run and long run between GCC Stock and macrocosmic variables because; the gulf economy is growing fast as well the economic of the global changes such as Euro-one’s possible disintegration. 9 Recommendations The Middle East world is sustained from the oil revenue. This revenue supports the stock exchange for all the regional countries. Oil as a commodity is traded by the use of a dollar, this suppresses the involved countries currencies. The regions ought to introduce a common currency for the trade of the lucrative commodity. This will maximize the profits from the oil yields, in addition, the oil related products has to be introduced into the stock market. This will be a means of expanding investment and shifting the focus of the oil industry in the local and international fund. In other hand، there is an issue, which needs to be studied such as transparency, and disclosure GCC stock market volatility was partly attributed to lack of transparency and information inadequacy because they are actually major cause of the factors preventing the efficient transformation of market signals. Moreover, a study should be done on this issue regaining truest among the GCC investors and possible appetizers that can attract the specially for the fact that the GCC stock market is dominated by the retail investors Lack of information leads to minimize the liquidity and enough information gives better result and high growth of investment so investor can evaluate on the right way. 10 References Hadadd & Sbeiti. Stock Market Dynamics in Oil dependent economies: Evidence from the GCC countries. Retrieved on 13th December from www.wbiconpro.com/307-Hyman.pdf Sbeiti & Alshamari. Integration of Stock Markets in the GCC Countries: An Application of the ARDL Bounds Testing Model. Retried on 14th December 2012 from http://www.eurojournals.com/ejefas_20_04.pdf Billmeier, Andreas and Isabella Massa. What Drives Stock Market Development in the Middle East and Central Asia—Institutions, Remittances, or Natural Resources? International Monetary Fund Review, 157. (2007): 3-15. Web on 13 Dec 2012 from www.imf.org/external/pubs/ft/wp/2007/wp07157.pdf Arab Capital Market Centre. One source for all Arab financial markets. Web on 13 Dec 2012 from http://www.btflive.net/ Bloomberg. Europe, Middle East & Africa Stock Indexes. Retrieved 12 Dec 2012 from http://www.bloomberg.com/markets/stocks/futures/ Saefong, Myra P. Middle East financial markets ignore the violence. 12 Sept 2012, Web on 12 Dec 2012 from http:// marketwatch.com/ Hall, Camilla. Middle East markets fall after S&P downgrade, Equities 7 Aug 2011, C1 from web on 12 Dec 2012 http:// http://www.ft.com Thornton, Grant. Middle East: towards innovation and transparency. Capital markets guide, 2008. Web on 12 Dec 2012 from http://www.gtkuwait.com/pdf/memg_report_final.pdf Zawya. Connecting intelligence with intelligence. Web on 12 Dec 2012 from http:// http://www.zawya.com/middle-east/financial-markets/ 11 Sambidge. GCC stock market lose $127bn in Nov 2008. Retrieved on 13th December 2012 from http://www.arabianbusiness.com/property/article/541354-gccstock-markets-lose-127bn-in-nov Dr. Hakim (pg. 1-7). Gulf Cooperation Council Stock Markets since September 11th. Retrieved on 13th December 2012 from: http://www.mepc.org/journal/middleeast-policy-archives/gulf-cooperation-council-stock-markets-september-11. Arabian Money. GCC Stock Market. 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