Gulf investors prefer financials, see corporate governance as critical

Stock market-listed companies in the financial sector have overtaken real estate as the most attractive sector for investors in the GCC, with telecoms a close third.

In terms of the market named as most attractive, Kuwait was the preferred equity market, with Dubai second and Saudi third.

The survey was conducted among institutional investors who are active in the region's equity markets. Two thirds (66%) of those surveyed invest more than 30% of their portfolios in the GCC markets.

Another area to be highlighted by the survey is corporate governance. Almost two in three investors (64%) say that poor corporate governance is "a significant barrier" to market performance.

The markets named as those in which corporate governance is best were Kuwait, closely followed by Oman. Perhaps significantly, though, the largest group (34%) answered "Not sure" to the question: "In which GCC market is corporate governance best?"

Saudi Arabia and Dubai were cited as the worst markets for corporate governance. This is significant, given they are the region's two largest and most actively traded markets. Recent efforts in both countries to improve governance and disclosure levels appear not to be changing investors' views just yet.

"The GCC capital markets are growing in importance for regional and international institutional investors," said Neil Foster, HSBC's Head of Global Markets for the Middle East. "This survey provides a snapshot of opinion among institutional money managers who are actively investing in the region, and on the whole they are optimistic and view the region's capital markets as an opportunity. The message about corporate governance would appear to be: the higher the levels of governance, the more likely the investment community will rate your stock."