THE BAHRAIN STOCK MARKET

Started as early as 1989, the Bahrain Stock Exchange is one of the established stock exchanges in the Gulf. Currently the market has 53 listed companies, 15 listed bonds and 42 investment funds. There are 14 brokerage companies operating in the stock market.

Bahrain allows both domestic and foreign companies, mutual funds and bonds to get listed on its Exchange. However, the listing criteria varies for each category. For domestic companies the minimum capital and paid-up capital requirement is Bahraini Dinar (BD) 500,000 and 250,000 with at least 100 shareholders. Companies should have total annual sales turnover of BD 500,000 and two year’s profitability track record and 20% higher net worth than the share capital. On the other hand, foreign companies should have at least US$ 10 million in share capital and 100 shareholders. They should have been already listed in the country of their incorporation. Closely-held foreign companies can also be considered for listed if they are in existence for at least 3 years. In the case of bonds, both local and foreign, a minimum size of US$ 10 million is required and foreign Bonds should have already been listed on the exchanges of their own countries.

 

MARKET CAPITALIZATION AND GDP

The market capitalization of the Bahrain Stock Exchange improved significantly over the past 5 years, from US$ 9.6 billion in 2003 to US$ 27 billion in 2007. Over the same period, GDP at current prices improved from US$ 9.72 billion to US$ 18.2 billion.  During 2008, mainly during the past few months, on account of the turmoil in the global stock markets, the Bahrain Stock Exchange market capitalization declined to US$ 24.5 billion as on October 31, 2008.

Listed Companies and Market Capitalization

Number of listed companies on the Bahrain Stock Exchange increased from 35 in 1997 to 44 in 2004 and further to 53 in 2008. However, the market capitalization of listed companies witnessed a significant jump of 181% between 2003 and 2007 on account of strong price appreciation and the few additional new listings.

 

Price Appreciation and Turnover

The Bahrain Stock Exchange witnessed strong price appreciation particularly since 2003 until 2005. The Bahrain All Share Index appreciated by 28.8%, 20.3% and 23.8% during 2003, 2004 and 2005, respectively. The price appreciation slowed down to only 1% in 2006 but again peaked to 24.2% in 2007. As of October 2008, the Bahrain All Share Index had declined by 19.4% on a year-to-date count, mainly on account of the global market turmoil.  The market turnover also consistently increased from US$ 0.27 billion in 2003 to US$ 1.39 billion in 2006, but declined to US$ 1.07 billion in 2007. During the current year, the market turnover was US$ 1.69 billion until the end of October.

Market Volatility

Bahrain Stock Exchange being the most illiquid market in the Gulf region had low speculative activities and low volatility. During the past five years, the average daily volatility remained around 0.5%. During the current year also, daily volatility remained range bound between 0.4% and 0.6%, while intra-month variations remained range bound between 5.29% and 10.61% until August. However, the Bahrain Stock Exchange also did not get respite from the financial market uncertainties and turmoil across the world during September and October as daily volatility increased to 0.9% and 1.6% and intra-month variations increased to 15.8% and 26.5%, respectively.

Current Valuation Levels and Future Outlook

As the Bahraini economy diversifies further, we may see some more listing on its stock market. However, the Bahrain Stock Exchange has the lowest market capitalization to turnover ratio of around 4%. Poor liquidity is a major concern for the development of this rather sophisticated Gulf stock market.  The current valuation levels in this market are compellingly attractive following the current year’s market decline on account of the recent global market turmoil.