Stock market downturns invariably reveal mistakes and failures previously concealed when markets were buoyant, often leading analysts and officials to call for increased transparency and improved regulation.
Reporting and governance are areas where analysts and asset managers say most Gulf companies have much room for improvement.
Quarterly results are frequently late, they say, and often only in Arabic; companies rarely have an investor relations team; access to executives is often negligible; and bankers are increasingly questioning the true worth of reported balance sheets.
According to a 2008 report by Hawkamah, a corporate governance institute based in Dubai, only 3 per cent of companies it studied in the Middle East and North Africa followed “good practice” and none followed best corporate governance practice.
“The region suffers from an acute lack of transparency,” says Ali Al Shihabi, head of Rasmala Investments, a Dubai-based asset manager. “It has improved a little recently but emerging markets in general have moved a lot further.”
Mr Shihabi says opacity is one of the main reasons why Gulf-wide stock markets have underperformed emerging markets indices over the past 12 months. “Given our superior economic fundamentals we should have outperformed other emerging markets, but the lack of transparency – both on a macro and micro level – erodes the confidence of investors.”
Money managers say some companies have improved in recent years but question whether they have received the benefit of a higher rating from investors in the Gulf.
“Unfortunately I don’t think companies are being rewarded for being transparent,” says Ali Khan, managing director of Arqaam Capital in Dubai.
Indeed, good governance and openness may actually have exacerbated share price drops.
“The companies that have been the most open and the best run have had the most foreign ownership,” says Emad Mostaque, a fund manager at Pictet Asset Management. Given that international investors have led the equity exodus since October these companies “have probably suffered the worst”, he says.
Yet in the long run there is international evidence of a correlation between transparency and stock market performance, says Amer Halawi, head of research at The National Investor and one of the authors of the Hawkamah report.
While market regulators across the Gulf still have problems – such as a lack of resources, legislative support and patchy enforcement of existing rules – most are making progress, says Nasser Al Saidi, head of Hawkamah.
Most of all, market pressures are also expected to spur improvement. The end of the Gulf boom and a global repricing of risk may force companies wanting to attract fresh capital to burnish their corporate governance credentials.
“Even regional money pools have become a lot more discerning,” says Mr Mostaque. “And when foreigners come back to the markets – and they will – the best companies will be rewarded.”