TAKING STOCK: Time For A Gulf Stock Market - WSJ.com

Maybe it's time for the petrodollar-rich Gulf Cooperation Council states to move on from just paying lip-service to a common market and a single currency to the more practical near-term objective of a broader regional stock exchange.

Calls for a single stock market have been growing louder by the day as volumes plunge and regional exchanges face the risk of falling off international investors' screens. The six-state GCC--with already existing political and economic relations--looks like the best place to start this unification process.

Stock markets in the GCC countries, led by Saudi Arabia, have a combined market capitalization of about $700 billion and recorded a daily average turnover of just about $1.5 billion in the last two years, according to Zawya.com. While the GCC markets don't compete directly in terms of listed stocks, they must still attract broadly the same investors and also themselves invest in expensive technology and infrastructure.

Analysts reckon a merger is unlikely, given the politics involved, but say greater cooperation would make sense as operating-cost efficiencies would improve, and the combined market capitalization would help attract more foreign investors.

Recently, a senior Abu Dhabi Securities Exchange official said that operational consolidation between the region's stock exchanges could be the best answer to the fragmentation issue. The creation of investable products with common themes makes sense. So does the creation of a single central depository and the synchronization of account-handling and collateral-management systems.

Furthermore, linking all the markets would allow investors to trade on all the exchanges freely; resulting in less volatility, deeper markets, and the increased likelihood of attracting foreign and regional institutional investors. Obviously, greater integration can only be achieved gradually but it could also lay the foundations for a derivatives market, which has a better chance of succeeding if done collectively.

The GCC states launched a common market in early 2008, paving the way for the free movement of labor and capital among the six member states and removing barriers to inter-GCC trade, but the real impact of this is yet to be seen. And designs for a single GCC currency may remain on the drawing board for some more time, given that its inspiration--the euro-zone--is itself struggling.

So Arab lawmakers may find integrating the region's stock markets a more achievable goal and one that could also, eventually, play a key role in boosting their common-market agenda, even though that may still be some way off.