Abstract
Authors of Working Papers are normally staff members of the Fund or consultants, although on occasion outside authors may collaborate with a staff member in writing a paper. The views expressed in the Working Papers or their summaries are, however, those of the authors and should not necessarily be interpreted as representing the views of the Fund. Copies of individual Working Papers and information on subscriptions to the annual series of Working Papers may be obtained from IMF Publication Services, International Monetary Fund, 700 19th Street, Washington, D.C. 20431. Telephone: (202) 623-7430 Telefax: (202) 623-7201 This compilation of summaries of Working Papers released during July-December 1994 is being issued as a part of the Working Paper series. It is designed to provide the reader with an overview of the research work performed by the staff during the period.
This paper analyzes the development of equity markets in selected Middle Eastern countries, evaluating their informational efficiency and potential direct and indirect benefits. It provides a basis for exploring policies that would enhance the markets’ role in stimulating investment and growth.
The backdrop for the analysis is the internationalization and integration of capital markets and the related sharp increase in private portfolio flows to developing countries. The paper starts by examining the nature of capital flows to developing countries, particularly in Asia and Latin America, in the context of the evolution of the international debt strategy and the restoration of these countries’ access to voluntary market financing. The sharp increase in flows to developing countries has given an added impetus to the growth and development of these markets, leading to significant increases in capitalization and trading activity.
The process of development of equity markets in the Middle East, as well as their integration with international capital markets, is less advanced in most of these countries compared with emerging markets in other regions. Appropriately, therefore, there is recognition in the Middle Eastern countries as to the need to broaden these markets. This recognition comes at a time of pressures on external aid flows, increased international competition for private capital, and an uncertain environment for the region’s terms of trade.
The paper’s analysis focuses on a sample of six countries consisting of relatively active markets (Jordan and Turkey), an established but less active market (Egypt), and more recently established markets (Iran, Morocco, and Tunisia). It is based primarily on a range of quantitative indicators, including market capitalization and concentration, price earnings ratios, price volatility, and the extent of correlation with industrial country markets. It also identifies the main differences within the selected set of markets and relative to international comparators and examines the associated structural factors.
The paper notes that while there are significant differences across these countries in the importance and characteristics of equity markets, in general the supply of equities remains limited both in absolute terms and relative to the size of the economies. The factors affecting the supply constraint are analyzed. A quantitative analysis of the efficiency of selected markets in the region, and a comparison of the efficiency of these markets with a number of other emerging markets, is also undertaken. Taking all statistical results together, the paper concludes that the informational efficiency of the Jordanian and Turkish markets is not very different from that of other emerging markets.