When it comes to stock exchanges, innovation is often key. And since 2010, the Bahrain Bourse (BHB) has been challenging the odds to emerge as the best and most competitive stock exchange in the region. It follows on with the long and fortuitous tradition of Bahraini stock exchanges, but combines it with cutting edge technology, state of the art equipment, and premium services.
The BHB was founded in 2010 as a replacement for the existing Bahrain Stock Exchange, which had been struggling to keep up with modern trading technology. It assumed many of the duties its predecessor passed one, but brought the level of services up to new standards. It continues as a self-regulated organisation, though the Central Bank of Bahrain licenses it.
Since its inception the BHB has drastically increased the number of companies, funds and bonds listed in the exchange, and today close to 50 regional and international companies are listed in the BHB, as well as 26 mutual funds and nine bonds and Sukuk. There are many advantages to listing with at the bourse, such as the low cost transaction, that is based on its recent incentive programme which capped the broker commission to provide incentive to investors encouraging them to be more active traders.
Bahrain has emerged as an attractive investment destination in and of itself in recent years, and the BHB has been working tirelessly to convert this investor interest into business opportunities. “Looking into Bahrain Bourse’s financial performance, the financial results in 2011 showed an increase in revenues from $9.3m in 2010 to $11.1m in 2011,” explains Yousouf Abdula Humood, BHB’s Chairman. “Recording an increase of 20 percent due to the grant received from the government during this year. Shareholders’ equity also increased from $11.6m, as of December 31, 2010, to $14.8m. BHB reported net profits amounted to $2.92m in 2011 compared to $164,000 in 2010.”
Geographically and economically, the BHB is ideally located to emerge as the leading stock exchange in the GCC region
These are phenomenal results for a company founded in the throes of the worst financial crisis since the Great Depression. Though, if anything, emerging in such a challenging environment has given the BHB a fighting spirit and robustness that will carry it on for generations. Upon its inception in 2010, BHB adopted a comprehensive strategy that aims at developing all aspects of its work. The strategy adopted included different initiatives and programmes. One of the initiatives taken includes programmes currently developed to increase liquidity at the bourse.
Solid foundations
Liquidity is vitally important for the bourse, but the company is taking other innovative steps in order to promote healthy and robust trading. All brokers who are licensed by alternative juristic bodies in other countries will be able to apply for membership at BHB to trade remotely without having a physical presence in Bahrain, and appoint a clearing agent to settle their trades. This step will open the gateway for all brokerage firms in GCC markets to serve their clients at BHB.
“In spite of all the consequences of the global financial crisis and the recent developments in the region that continued to affect the trading activity in most Arab stock exchanges and financial markets, there were various achievements for BHB during 2011 regarding legislative, administrative, and technical aspects which contributed to setting the bases of BHB’s future policies for the coming years, along with defining the nature and size of roles that BHB undertakes to contribute more effectively to the development of the Bahraini economy,” says Humood.
The bourse also spent a lot of time and resources developing a series of programmes and initiatives that provide incentives to attract and encourage new local and regional companies to seek listing at BHB. Locally, the exchange is seeking collaborative work with related entities that will not only provide the improved legal structure but also aid in other elements required to engage in capital market instruments and services.
BHB is also continuing to improve the legal and technical infrastructure in order to meet the growing needs and demands of issuers and investors which include improved online services and easy to process and cost effective operations. The strategy also aims to implement a marketing plan and an awareness programme to highlight the opportunities the strategy provides for all related parties in the short, medium and long term.
There has also been a concerted effort to attract foreign investors to Bahrain. Taking advantage of the favourable tax environment in the kingdom, the BHB has developed an innovative package to encourage foreign ownership. It allows foreigners a 100 percent ownership completely exempt from capital gains tax. The availability of international custodians operating in BHB such as HSBC, CITI and Standard Chartered Bank, and other regional institutions is another advantage for listed companies operating in the kingdom.
And the results are promising. According to the Bahrain All Shares Index, as of the end of November 2013, the bourse gained 13.41 percent compared to the same month in 2012. This increase was associated with a noticeable increase in the value of shares traded by 99.42 percent, the volume by 195.62 percent and the number of trades also increased by 40 percent in comparison to the corresponding period in 2012. The market capitalisation of the BHB stands over $17.7bn. In addition the main financial indicators shows that Bourse’s price-earnings ratio is less than eight times, the dividend yield is around five percent and the price to book value is less than one, based on 2012 results.
Expanding strategically
Having laid solid foundations for development, the BHB is now looking to the future. From this year onwards, it will begin implementing a comprehensive marketing strategy both locally and regionally. While results have been positive, the key now is to attract more listings in order to be able to compete with the leading exchanges in these regions. Geographically and economically, the BHB is ideally located to emerge as the leading stock exchange in the GCC region.
“The BHB have also taken several initiatives to support the development of the workplace environment in a way to enhance staff loyalty to the bourse, maintain all experienced, competent and well-qualified employees, and strengthen internal control systems of BHB’s financial, administrative and technical operations,” says Humood, about the bourse’s commitment to emerging as the leading trader in the region.
With regards to spreading awareness among investors and other concerned parties, the bourse signed a memorandum of understanding with JPMorgan to conduct an annual programme that aims at promoting the stock exchange’s investor relations concept among listed companies locally and regionally. This programme will be held in 2015 for the fourth consecutive year, and attended by participants from Bahrain and other countries in the region. In addition, the BHB signed another memorandum with CFA Bahrain to jointly cooperate in conducting courses and workshops directed to listed companies, brokerage firms, investors and other related parties.
This commitment to education is a defining characteristic of the BHB. Last year, the company launched a programme entitled ‘TradeQuest’ for universities. The programme aims at increasing the investment awareness among university students and familiarising them with the basics of stock market operations and investment techniques by allowing them to virtually trade at BHB and NYSE. There is a similar version of the programme, which has been conducted by the bourse for the past 17 years and targets high school students.
Every step of the BHB’s rise has been carefully calculated in order to ensure its rise is successful and sustainable. And as the world economy recovers more IPOs will begin springing up, at which point the bourse will be ideally positioned to service this burgeoning industry. With its slew of innovative measures designed specifically to attract and support listed companies and investors, it is likely that the BHB will emerge as a leading market creator in the coming years. By encouraging local businesses to grow and diversify, the BHB is not only fostering a better market for itself, but is supporting the growth and development of the whole of Bahrain.
