Deloitte Equity Capital Markets confidence survey
From a trot to a canter?
We are delighted to present the results of our first Deloitte Equity Capital Markets confidence survey.
The survey was conducted through meetings with 30 equity capital market practitioners within regional and international banks operating in the GCC, covering the MENA region. These practitioners have shared their views and individual experiences that have been collated and reflected in the commentary.
This survey comes at an exciting time for the region, as the GCC economies are showing positive signs of recovery across a multitude of sectors, including retail, tourism, real estate and infrastructure.
The regional equity markets which had generally been depressed following the impact of the global financial crisis are now showing signs of recovery with higher volumes being traded and more interest from foreign investors. The Saudi Stock Exchange (Tadawul), Dubai Financial Market (DFM) and the Qatar Exchange (QE) are expected to be the most active GCC exchanges over the next 12 months.
The socio-political uncertainty in Egypt, Syria and Iran has seen cash inflows boosting the real estate and stock market volumes in the GCC countries (especially the UAE), as foreign investors seek a safe haven for their money. While there is divided opinion about the stickiness of these money flows, there is general agreement that if equity markets offer an attractive and secure proposition to these investors, this liquidity may be retained.
The MSCI announcement earlier this year to upgrade the UAE and Qatar exchanges to emerging market status, effective in May 2014, has had a positive impact on sentiment and boosted volumes on these markets.
Following the lessons learnt from the Arab Spring, regional governments are increasingly looking towards the equity capital markets as a mechanism for the distribution of wealth. Policies being pursued by some regional governments include the requirement for businesses in specific industries (such as telecoms and financial institutions) or State Owned Enterprises (SOE) to list on local exchanges, providing investment opportunity for retail investors.
Bond markets have been enjoying a solid run for the past few years attracting investors. With debt expected to become more expensive, issuers are more seriously looking towards equity markets as a source of raising finance in this cash rich region.
Whilst the GCC offers ample liquidity from petro-dollars, the dearth of investable corporates currently available on the regional exchanges and road tested regulations that are positively perceived by investors, are stifling the potential of these markets as sources of equity capital.
There is more confidence around the supply of prospective issuers, as local corporates and family owned businesses, coupled with private equity investors seeking to exit their portfolio companies, look towards both the regional and international markets to list. The challenge appears to be around the ability of exchanges to attract these corporates to list regionally and not seek Initial Public Offerings (IPOs) on international markets, as some have chosen to do in the last 24 months.
With the backdrop of a GCC recovery, evidenced by the successful listing of NMC Healthcare and Al Noor Medical on the London Premium list, there is an increasing opportunity for issuers to raise equity capital from sources outside the GCC. This competitive pressure may perhaps be the missing ingredient that prompts regional listing regimes to address the structural and regulatory issues that will then attract both issuers and investors, and help in the development of a robust and thriving regional market which would benefit all stakeholders in the region.