Exciting times for GCC capital markets

This may not look like a good time for GCC markets. Stock prices have been drifting in the UAE and have undergone a strong correction in Saudi and a smaller one in Kuwait.

But the announcement that the new Saudi Capital Market Law will take effect in February next year is great news. For the first time the Kingdom will have a modern stock market run by an independent commission with an electronic trading system.

Local brokers are ecstatic and see the new market as an answer to insider trading and the open door to the introduction of new financial instruments such as bonds. This should result in the listing of a lot more companies and more successful privatizations.

The real optimists also predict that the Kingdom will open up its new bourse to foreign direct investment and allow the regional cross-listing of shares to create a huge regional bourse.

That of course is what the new Dubai Regional Exchange - part of the upcoming Dubai International Financial Centre - hopes to achieve, and the Saudi Capital Market Law does look a competitor, if only by accident rather than design.

However, the emergence of more listed companies in Saudi Arabia may actually benefit the DRE in particular which definitely wants to be an open regional market with cross-listings. UAE companies might also see a benefit in listing in the Kingdom to mobilize capital and enhance shareholder value.

The UAE bourse has also, independently, committed itself to a number of useful reforms such as the unification of its two trading platforms.

One thing is for sure, two of the region's biggest stock markets are heading for fundamental changes and that can only be beneficial to the depth and liquidity of local capital markets. That may mean that the present fall-off in share prices proves to be just temporary.