Fine as far it goes but more needs doing

The introduction of a new Arab stock index by Standard & Poor's (S&P) today is welcome news for regional companies and exchanges at a time when many are in dire need of a boost.

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Simply put, it means more money will pour into local markets if and when fund management companies adopt the index and sell it to investors.

The index in itself, however, is far from a panacea for the ills of Middle East markets. While the crisis has prompted countries to look at reforms to bring back wary investors, many of those investors still see better opportunities elsewhere - a situation the mere inclusion of Arab countries in a new index does nothing to address.

In the UAE and across the Gulf, the list of investors' complaints is long. Trading costs are high compared to other emerging markets. The range of sectors represented on local exchanges is narrow, with few energy companies listed. Navigating the bureaucracies of multitudinous exchanges is also viewed as a burden by some.

To be sure, regulators and exchanges in the region have been trying to enhance their appeal to investors, a priority that has only grown more urgent since trading volumes on the UAE's and other national exchanges fell dramatically after the financial crisis.

As the UAE and Qatar court MSCI, another major stock-index provider, for promotion from "frontier" to "emerging" markets in its popular benchmarks, caps on foreign ownership have been loosened for some companies.

The UAE in May adopted a structure for clearing and settling stock transactions that meshes with those in more mature markets.

S&P's move is a vote of confidence. But more steps to make regional investing both pleasant and cheap are needed before activity can really pick up, whether or not the UAE and other Gulf countries are included in big indexes such as S&P's or MSCI's.

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