Page 27 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

12 Introduction

zones in which full foreign ownership is allowed have thrived in the
UAE, setting an example that Qatar, Bahrain, and others have begun
adopting in targeted ways. Intra-GCC investment is a growing trend
that is not limited to free zones, and the expansion of Gulf businesses
into adjacent GCC markets is becoming more common. That said, the
GCC is far from fully integrated as an economic unit, and significant
progress in opening markets still needs to be made.
Listed equity markets in the region have experienced a number of
booms and busts, including two cycles over the past eight years. From
2001 to 2006, a swell in liquidity and an increased regional/domestic
focus led to a tremendous boom in stock prices. The market capitaliza-
tion of key Gulf companies reached meteoric heights—UAE-based
property developer Emaar, for example, became the highest-valued
developer in the world. 22 Then a sharp correction in 2006 wiped out
more than half of the total market capitalization in the UAE, Saudi
Arabia, and Qatar, and over a third of the value in other GCC
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markets. This decline, although painful, brought valuations closer in
line with emerging-market standards. Stock prices rose again in 2007
and much of 2008 before the global financial crisis led to another
severe downturn and “bust.” Gulf equity markets remain largely
sentiment-driven, with retail investors contributing the bulk of
invested capital and typically trading more on confidence than on the
fundamental analysis of companies. This was particularly evident in
the bust of 2006, in which many companies lost more than half of their
market capitalization despite achieving earnings growth and solid
fundamental results.
Macroeconomic trends in the region—including sustained pros-
perity, demographic shifts, and regulatory reform—suggest a promis-
ing outlook for investment in the region. Furthermore, expansionary
budgets in the region in the wake of the global recession suggest that
strategic sectors may experience fast growth. That said, the best
investment opportunities are generally not on the public markets and
are accessible only through private equity and joint-venture vehicles.
In recent years, Gulf-based investors have significantly increased
their interest in emerging-market investments. This trend, discussed in
Chapter 6, is of great significance for those who are seeking to attract
Gulf capital or to advise investors based in the region. While the “typi-
cal” Gulf portfolio remains heavily oriented toward investment in the
United States and other Organisation for Economic Co-operation and
Development (OECD) markets, investments in the broader Middle
East—the Levant region, Egypt, and North Africa—are sizable and