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In an effort to give the secondary market in Bahrain a boost, India's Financial Technologies Ltd, the $1.01 billion global leader in creating and operating new generation tech-centric financial markets, plans to launch a new bourse in the kingdom.
Financial Technologies is a relative newcomer to the exchange and trading business, but has grown rapidly since it was founded in 1988.
It is the biggest stakeholder in the Multi-Commodity Exchange of India (MCX) and has a market capitalisation of $443.7 million.
The Bahrain Financial Exchange (BFX), which will start functioning from the second quarter of next year, will be the second stock exchange in the kingdom.
BFX is expected to enhance the diversification, productivity and competitiveness of the economy of Bahrain. The exchange would ensure increased transparency, sophistication and easier access to multiple asset markets.
The products offered on the exchange will enhance value addition and improve risk management in the sector, stimulating a virtuous cycle of investment and growth.
BFX will provide a secondary market for Islamic bonds (sukuk), which do not have a strong secondary market and are usually held till maturity.
The exchange will provide a trading platform for both Islamic and conventional products in equities, derivatives, commodities and currencies.
Financial Technologies Ltd hopes that a strong secondary sukuk market could attract other important institutional investors such as pension funds.
Sukuk volumes dropped dramatically in 2008, hit by the global liquidity crunch. Total sukuk issuance stood at $14.9 billion, down 56 per cent from 2007, according to ratings agency Standard & Poors.
Abu Dhabi, Qatar and Dubai are all championing their own exchanges, while Bahrain is the smallest stock market in the region apart from that of Oman.
The Indian company already has investments in the Gulf, including the Dubai Gold and Commodity Exchange, launched last year.
Craig Hewett, Financial Technologies' regional business officer, says: "We know there are a few other exchanges in the region, but it doesn't mean there can't be another one. Our multi-asset platform is our outstanding differentiator ... (and) clients want a liquid secondary market, which we can provide."
The plan comes amid a challenging time for stock markets.
The MSCI Arabian Markets Index has shed nearly two-thirds of its market capitalisation in the past 12 months as plummeting oil prices and the credit crunch spell the end of five years of growth in the region.
The GCC markets experienced a turbulent 2008 that resulted in all the markets closing the year with significant double-digit declines.
The year again highlighted the correlation between markets and oil prices, which after hitting a life-time high of $147 per barrel in July 2008, corrected by over 70 per cent by December 2008.
On a comparative basis, both volume and value traded declined across all the GCC markets in 2008. The total volume traded in the GCC declined to 275.6 billion shares in 2008 from 292.6 billion shares in 2007. The total value traded also declined by 10.6 per cent in 2008 ($860.3 billion in 2008 versus $962.7 billion in 2007).
The Bahrain Stock Exchange (BSE), in the first half of 2008, had posted a six-month gain of 3.8 per cent. Furthermore, the BSE also reported a yearly growth of 348.8 per cent in total volume of shares traded and an increase of 33.8 per cent in market capitalisation in the first half of 2008.
However, the BSE's market cap has contracted to $21 billion in December from around $31 billion in June. On a YTD (year to date) basis, the index lost 34.5 per cent in 2008, as against a gain of 24.3 per cent in 2007.
All the major sectoral indices were down, with the key sectors of investment and banking losing 37.9 per cent and 39.2 per cent, respectively.
However, as the credit crisis intensified, the kingdom's banking stocks went into a tailspin and the banking index declined 10.4 per cent, 11.8 per cent, 15.3 per cent and 8.4 per cent in September, October, November and December, respectively.
Hotel and tourism was the only sector to post yearly gains of 23 per cent in 2008. The services index, which was up 0.8 per cent in December, has reported a loss of 19.4 per cent in 2008.
The BSE ended the year with a monthly loss of 7.5 per cent in December. This was the seventh consecutive monthly loss posted in 2008, with November witnessing the highest loss of 12.2 per cent. At current price levels, the Bahraini market is trading at five times over its 2008 earnings.
In 2008, total volume traded in Bahrain stood at 1.6 billion, whereas the total value traded increased 136.6 per cent during the year from $0.9 billion in 2007 to $2.2 billion in 2008.
