Dubai Bank CEO urges regional capital markets to fast track development

Mr. Bin Brek's comments were made in a keynote speech at The Hedge Funds World Conference, which opened today at the Jumeirah Beach Hotel in Dubai.

Commenting on the global equity market collapse, September 11, the US corporate governance crisis and the international scrutiny of assets and accounting procedures, Mr. Bin Brek said that although regional capital repatriation is still limited, domestic capital markets need to be better developed to maximise the potential to absorb and deploy the trillion dollar pool that emanate from the region.

"Recent statistics have shown that in 2002 around $2 billion returned to the UAE, nearly 20 billion riyals was repatriated by Saudis and the Kuwaiti stock market witnessed a 30 per cent growth. While this indicates an increase in regional investment these figures only represent a fraction of Arab funds invested abroad. A catalyst for change is imminent but we must do more to ensure that the infrastructure and framework are in place to seize this opportunity," commented Mr. Bin Brek.

Mr. Bin Brek noted that although the region has started to invigorate domestic capital market and tap global ones, more is still needed. "The recent movement by the Saudi government to divest 30% of the Saudi Telecommunications Company, the Kingdom's Shura Council approving a draft capital markets law and Bahrain's decision to tap global capital markets with a $500 million Eurobond are all positive steps but they represent just the tip of the iceberg and we still have a long way to go.

"Our capital markets still only account for $170 billion. Without rapid improvements we will slow regional economic growth prospects," he explained. Mr Bin Brek also called for the consolidation of regional bourses pointing out that while talks to unify regional markets are underway, there is still talk in the UAE of establishing additional trading floors in Ras Al Khaimah, Sharjah and Fujairah.

Mr Bin Brek also noted that more mature markets will more precisely reflect the region's underlying economic activity. "The current Tadawal trading system overseen by the Saudi Monetary Agency comprises just 68 listed firms, with only 13 new companies admitted to the market in the last 10 years. Saudia, Saudi Telecoms Company and the region's largest bank, National Commercial Bank are not even listed. These companies have total collective assets in excess of $70 billion," he explained.

"Small developments in regional private equity and mutual funds are not enough. These remain purely local and capture only a fraction of total bank deposit bases. The institutional and individual investors are attuned to the sophisticated array of products in western markets. They seem happy to invest here but we must ensure that we match their expectations," he explained.

"Private equity and mutual funds represent a conservatism in the market and the astute regional institutional and individual investor, accustomed to a variety of asset bases in the west will be looking at more than simply a low risk real estate investment and will demand superior returns," he continued.

Private asset management argued Mr. Bin Brek should be encouraged through the development of a solid legal framework. "Governments can play a role in helping to heighten awareness of the need to protect future income and by agreeing to pool investor resources", explained Mr. Bin Brek. "Hedge funds today are not highly prevalent but with the dynamics of the current investment climate, access to this facility will provide an alternative to current asset management provision," he continued.

Mr. Bin Brek also called for the establishment of a credit culture, where investors evaluate risks and returns and pursue investment and financing based on calculations derived from such evaluation. He also urged the authorities to put in place the institutional infrastructure such as legal, regulatory and accounting systems and continuously improve them as new financial products based on new technology are introduced in the market.

"The combination of forces in play in both regional and international markets means that capital market development in the region is no longer a misnomer. This is a time of opportunity. Global investment paradigms are changing and global economic development paradigms are also changing. The path towards more diverse and complex investment products and services is an inevitable one and the region has a great chance to contribute to the development of the world economy," concluded Mr. Bin Brek.