The news for Gulf investors is good. There are plans for cross-listings on GCC exchanges and it is confidently expected that there will be a steady flow in Initial Public Offerings (IPOs) in the second half of this year. While there are plenty of professional investors who will welcome the broadening of the investment base, it is likely that the growth in the opportunity to buy stocks and shares will attract a wider group of private investors, who have spare cash to play with. There are two important factors to bear in mind about this new investment environment, which concern all GCC countries, but particularly Saudi Arabia as the largest economy among them. It is now a given that it is essential to build a non-oil economy that will be sustainable as hydrocarbon revenues flatten out and in due time, actually decline. That moment may seem a very long way off, but it is important that all GCC states take advantage of the current period of prosperity, thanks to high oil prices, to continue to make the foundation investments upon which the non-oil sector can grow. In the Kingdom, despite the presence of a number of large conglomerates, involved in particular in construction, non-oil business is still dominated by thousands of small and medium-sized enterprises (SMEs). Some of these are family concerns where there is little ambition other than to carry on making a decent living and providing employment to family members. However, the majority of these firms, especially those where the younger generation are coming to the fore in management, is interested in expanding. Every small business faces a crucial point in its growth when it requires more money that it can generate itself from profits, in order to seize the larger commercial opportunities that are out there. Classically, this new capital has come either from other family members or in the form of loans from banks. Bank money, as it is called, is however at best medium-term and, with arrangement fees and other disbursements, can prove expensive. Raising money by selling shares often not only proves cheaper but more importantly, it represents funds that are not going to be called in. In return for annual dividends, many investors are content to hold shares while others trade quoted stocks as their value rises and falls. A busy and, most importantly, liquid stock market, in which investors can always sell or buy shares, is the ideal way to channel funds into productive investment and should therefore be encouraged. The second factor is no less important. The smaller and therefore less liquid the market, the sharper can be the movement in share prices. In the early days of the Tadawul, inexperienced investors piled in enthusiastically assuming that share values would keep on growing, which of course they did not do. Money was lost in market “corrections" and some naïve players walked away from the idea of future share-buying. Some 20 years on, the GCC stock markets are deeper and more mature. Although there will always be some failing companies, a new generation of stock market investors can look to the future with much greater confidence.
