The Gulf stock market crashes of 2005 and 2006 tore the shirts off many investors who had come to believe that the great bull-run could not end. But it did: most markets, including the largest in Saudi Arabia, lost 50%, Financial Times reports.
The correction tempered local investors’ expectations and also triggered a desire for hedging facilities to provide consistent returns and smooth out volatility. Now, some regional funds are touting their credentials as hedge funds, saying they can mitigate market risks through innovative tools that sidestep a Gulf-wide ban on shorting stocks.
Demand is also spurred by the presence of family offices, the hedge fund industry’s original sponsors, and their near-relations, sovereign wealth funds. Both can afford to take a long-term view and, in the Gulf, both are growing exponentially.
A small pool of international hedge funds, such as Pantera and Argent, have already dipped their toes into the markets by launching regionally-focused vehicles. They join institutions such as MENA Capital, which launched a hedge fund in 2006.
However, many stocks remain off limits to foreign ownership, including the region’s biggest market, Saudi Arabia, where foreign access remains restricted to mutual funds. Only Kuwait offers futures equities contracts.