This study aims to examine the impact of financial globalization on Arab capital markets development using commonly recognised indicators to test this impact.  Arab countries made significant reforms to improve market efficiency, transparency, and prevent unfair trade practices. The results showed that Arab financial markets the more opened to global financial markets are the most affected by crisis over the study period. Keywords: Financial globalization,Arab capital markets,Crisis,Volatility, domestic financial system

BERBAOUI, KAMEL

LALMI, FATIMA

SLIMANI, ILYES

English

International Institute for Science, Technology and Education (IISTE): E-Journals

Research Journal of Finance and Accounting                                                                                                                                    www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.2, 2016  37 The Impact of Financial Globalization on the Arab Capital Markets  : Analytical Study (2010-2015)  FATIMA LALMI, ILYES SLIMANI, KAMEL BERBAOUI Laboratory of Economics Study & Local Development In South West of Algeria Department of Management, Bechar University, Algeria  Abstract This study aims to examine the impact of financial globalization on Arab capital markets development using commonly recognised indicators to test this impact.  Arab countries made significant reforms to improve market efficiency, transparency, and prevent unfair trade practices. The results showed that Arab financial markets the more opened to global financial markets are the most affected by crisis over the study period. Keywords: Financial globalization,Arab capital markets,Crisis,Volatility, domestic financial system.  1. Introduction: Financial globalization is a vast and complex topic. Understanding the effects of financialglobalization on Arab countries, in particular, is of considerable importance. It is acknowledged that financial integration affect several aspects of economic performance, specially the performance of capital markets.Its role to increase investment rates, technology transfers, trade openness, stimulates the development of domestic financial system and economic growth.  This study aims to determine the impact of financial globalization on Arab capital markets development using different indicators during the period from 2010 to 2015. II- An overview about financial globalization and stock markets: II-1 Financial globalization : The concepts of financial globalization and international financial integration are closely linked. Financial globalization is a broad concept that refers to the strong expansion of transnational financial flows (Prasad et al. 2003). According to the World Bank, ‘financial globalization’ or ‘globalization of financial markets’ can be defined as “as the integration of a country’s local financial system with international financial markets and institutions” (World Bank, Global Development Finance, 2010). The concept of international financial integration (or financial integration) refers to the specific links of a country with international capital markets (Prasad et al. 2003). II-2 Effects of Financial globalization on capital markets: Some studies found that financial liberalization has positif impacts on the countries economy in general , specially on capital markets .Among them  the dominant economic theory , it suggests that financial globalization and international financial integration may foster more efficient resource allocation, facilitate risk diversification, increase specialization in production, create technological spin-offs, contribute to the development of the financial system, improve investment rates and boost growth (refer, in particular, to IMF (2001) ; Edison, Klein, Ricci and Sløk (2002a and 2000b) ; Henry (2000) ; King and Levine 1993); Mougani (2001 and 2006) ; Obstfeld (1994) ; Prasad et al. (2003); and Stulz (1999).  The positive impacts can be summarized as follow : a. Increased savings: Because of a performance  relatively higher capital into developing countries, the opening of the capital account resulting in an increased capital inflows from developed countries. These inputs are used to compensate, at least partly, structural savings from which suffer developing economies. b. Reduced cost of capital : Market financial liberalization expands the possibilities of risk allocation. Seeking to diversify their risks, local firms become active in these markets and this facilitate the increase liquidity of shares traded. In total, diversification translates into lower risk premiums requested by investors while increasing liquidity causes the reduction in the cost of capital.  c. Increased technology transfers: Integration fiscal policy is perceived as a "market-friendly" by foreign investors thus results in a Rising foreign investment including FDI. Technology transfers are facilitating productivity labor increases. d. Financial sector development: Besides deepening the local financial market (rising capitalization ratio of GDP, for example), the model predicts an increase in foreign participation in the banking sector: the modes management and risk control systems are well modernized; the range of financial services is expanding their competition intensifies and enhances the quality banking. The credit allocation becomes  more efficient. Although the positive effects of financial globalization , some other studies disagree and criticized authors’ of dominant economic theory, in particular, note that fluctuations in capital flows related to capital account Research Journal of Finance and Accounting                                                                                                                                    www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.2, 2016  38 liberalization are likely to cause and spread financial crises3. These new stances were mainly developed after the crises of the 1990s. Institutions such as the International Monetary Fund and some authors thus emphasized that while financial openness is desirable, it is essential for such liberalization to be gradual and prudent (IMF 2001). III-Analytical study: In this study, the development of the stock markets in Arab countries  is measured with the help of selected indicators of development. The following figure highlights the salient features of stock market of those countries (table 1 and table 2) : Table 1: Number of listed companies in Arab capital markets  Number of listed companies  2010 2011 2012 2013 2014 2015 Abu Dabi market 64 67 66 66 65 83 Amman market 277 247 243 240 236 230 Bahrain market 49 49 47 47 47 50 Saudi Arabia market 146 150 158 163 166 92 Kuwait market 214 216 219 210 216 74 Morocco market 75 76 77 75 75 24 Algeria market 2 2 2 2 2 2 Tunisia market 56 57 59 65 81 44 Dubai market 65 62 57 55 58 60 Sudan market 53 56 57 59 58 224 Palestine market 40 46 48 49 49 204 Muscat market 119 130 131 131 131 147 Qatar market 43 42 42 42 42 50 Beirut market 24 25 28 28 30 171 Egypt market 212 214 213 212 215 78 Total 1441 1460 1462 1466 1471 1531 Source: Annual Reports of Arab Monetary Fund ,2010/2011/2012/2013/2014.  Table 2: Number of sharestraded in Arab capital markets   2010 2011 2012 2013 2014 2015 ABU DHABI SECURITIES MARKET 17 111,97 15 601,53 16 343,68 51 455,36 58 522,27 23 549,14 AMMAN STOCK EXCHANGE 6 912,23 3 982,29 2 338,32 2 619,63 2 109,48 2 155,93 BAHRAIN STOCK EXCHANGE 610,12 486,57 561,14 1 791,67 1 096,87 399,93 BEIRUT STOCK EXCHANGE 150,70 74,80 51,63 42,63 89,03 44,83 CASABLANCA STOCK EXCHANGE 354,66 217,86 254,06 220,14 302,86 149,63 DAMASCUS SECURITIES EXCHANGE 0,13 16,75 11,20 18,63 25,16 6,95 DOHA SECURITIES MARKET 2 012,25 2 162,66 2 190,22 1 848,73 4 248,49 1 943,72 DUBAI FINANCIAL MARKET 37 578,17 25 018,05 40 462,90 127 180,36 158 898,20 87 120,46 EGYPT CAPITAL MARKET 27 336,99 16 669,04 31 980,14 26 991,32 54 277,63 26 177,91 KUWAIT STOCK MARKET - - - - - - MUSCAT SECURITIES MARKET 2 990,60 2 341,97 4 247,54 8 033,08 6 411,16 4 813,02 PALESTINE SECURITIES EXCHANGE 217,20 175,97 145,79 202,40 180,60 118,02 SAUDI STOCK MARKET 31 555,34 47 640,18 83 653,14 51 916,56 68 420,65 52 467,06 TUNIS STOCK EXCHANGE 245,04 231,43 223,02 209,08 195,69 188,22 Total 200 757,89 152 496,56 223 945,58 272 937,00 356 000,30 201 986,64 Source : Annual Reports of Arab Monetary Fund ,2010/2011/2012/2013/2014/2015. According to the table we notice  that there was slow expansion from 2009 to 2014 as measured by number of companies listed on the capital markets, which reached 30 companies by a percentage of 2.08%.This result was made by : - The growth of number of listed companies in some countries such as : Saudi Arabia ,Kuwait,Tunisia ,Beirut.Which led to the augmentation of of number of shares traded. - The decline of number of listed companies in other countries like : Abu Dabi,Amman,Dubai and Morocco because there was a high liberalization of their capital markets. Concerning the turnover rate of Arab stock markets showed in table 3: Research Journal of Finance and Accounting                                                                                                                                    www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.2, 2016  39 Table 3: The turnover rate  of Arab capital markets  2010 2011 2012 2013 Abu Dabi market 30,6 14,8 15,8 16,6 Amman market 12,0 9,4 7,8 19,8 Bahrain market 34,7 17,8 26,7 61,6 Saudi Arabia market 1,4 1,7 1,9 3,2 Kuwait market 25,1 11,4 13,7 10,2 Morocco market 57,3 86,5 137,8 78,1 Damascus market 6,1 10,8 3,3 2,9 Tunisia market 11,3 9,8 8,8 15,6 Dubai market 14,9 16,9 15,4 13,5 Palestine market 18,4 13,2 9,6 10,5 Muscat market 34,5 20,7 24,9 35,8 Qatar market 14,8 5,0 3,7 3,3 Beirut market 66,4 50,2 49,4 37,5 Egypt market 20,5 13,8 13,5 13,4 Total 38,2 44,0 66,4 47,0 Source : Annual Report of Arab Monetary Fund ,2012, p 409. : Annual Report of Arab Monetary Fund ,2014, p 422. According to the table we notice  thatturnover rate recorded an increaseduring the period between2010 and 2012from38.2to66.4as a result ofincreasedtrading volumein the Arab markets. Thenthe turnover ratefell to47in 2013, due to several factors, including: changing the behavior of traders from speculative to investment medium and long termand thus keep the shares for a longer period, and wentpart of theliquidityto thereal estate investment. Concerning the capitalization of Arab stock  markets showed in table 4: Table 4: Capitalization of Arab capital markets  2009 2010 2011 2012 2013 2014 2015 Abu Dabi 80.201 77.647 71.329 77.647 109.645 113.739 133.948.71 Amman  31.889 30.904 27.210 26.971 25.761 25.493 23.922.73 Bahrain  16.263 20.060 16.590 15.532 18.469 22.087 18.026.28 Saudi Arabia  318.751 353.400 388.873 373.365 467.341 482.896 17.374.02 Kuwait  93.824 113.883 86.295 79.375 108.469 100.334 46.332.81 Morocco  74.186 69.386 60.092 52.605 55.329 53.369 600.30 Algeria  91 106 136 127 125 110.69 156.147.68 Tunisia  9.237 10.612 9.648 8.874 8.950 9.295 86.139.79 Dubai  58.095 54.692 9.648 8.874 8.950 87.831 57.254.83 Sudan  3.033 2.446 2.695 2.192 2,244 1.876 96.269.43 Palestine  2.377 2.449 2.782 2.836 3.242 3.190 28.362.65 Muscat  23.616 28.304 26.210 30.299 36.767 37.830 3.175.85 Qatar  87.936 123.641 125.598 126.297 152.589 185.814 8.202.36 Beirut  12.834 12.676 10.285 10.421 10.545 11.221 8.202.36 Egypt  91.092 84.109 48.679 61.621 61.517 69.907 - Total 903.427 986.832 876.982 918.730 1132.166 1205.860 1.100.474.75 Source : Annual Reports of Arab Monetary Fund ,2010/2011/2012/2013/2014. We can see that the capitalization of Arab capital markets passed by two steps : - From 2009 to 2011: we notice that the capitalization declined from 903427 million dollars to 876982 million dollars because the effects of global financial crisis. - From 2012 to 2014: we notice that the capitalization increased from 918730 million dollars to 1205860 million dollars because the growth of foreign investment in these markets.   Analysis of the performance of Arab financial markets: - 2009was characterized byunevenperformance of Arabmarkets, it recordeda marked declineat all levelsas a resultaffected bythe global financial crisis, whichresulted in the exclusionof investments, including tospread of an atmosphereof uncertaintyamong investors, it was also affected bythe slowdownin economic activity, which affected theperformance and profitability of listedcompaniesin these markets.(AMF Annual report, 2010)      Thisvulnerabilitydifferedbetween the Arabmarkets,according to the degreethey relate tothe global financialmarkets, there is no doubtthat themost relevantmarketsto global markets and the Research Journal of Finance and Accounting                                                                                                                                    www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.2, 2016  40 mostattractivefor foreign investmentare the mostaffected .  - 2010was markedimprovement inthe performance of Arabfinancial marketsas a result ofthe following reasons: (AMF Annual report, 2011) a- Improvement in the activity of the initial versions. b- The attention ofthe authoritiesto strengthenprotection and controlthrough the introduction ofnew controls, in addition to theinterest inthe application ofsoundgovernancestandardsand stimulatecirculation. - 2011 most of the Arab financial markets had a significant decline as a result of the political events in Egypt dated 01/22/2011, where bourses lost $ 141 billion, equivalent to 14 percent of their market value, within only five weeks of the outbreak of the events in Egypt. However, most of the Arab authorities have taken measures to stabilize the financial markets. After that the European sovereign debt crisis , which impacted negatively on the Arab financial markets, particularly ones associated with the global financial markets.(AMF Annual report, 2012) - 2012 scored an improvement in the most Arab market indicators, although some of them were influenced by the instability of some Arab countries. (AMF Annual report, 2013).  -2013 was characterized by the following:  a. Upgrading some Arab financial markets to the rank of emerging financial markets. b. Arab financial markets performance improved by 18.6 percent, according to the Composite Index for the Arab Monetary Fund.  c.Improvement of the overall market value of these markets and increase the flow of foreign investments in it. -2014/2015 were characterized by a decrease of14.1percentinthe composite index of the Arab Monetary Fund due to continued uncertainty about oil prices, and the instability ofthe Araband emergingfinancial marketsas well asforeigncurrency markets.  IV. Conclusion As a conclusion to this study, the increasing use of international capital markets is having both positive and negative effects on domestic markets. In terms of positive effects, the financing obtained by firms and governments in international markets tends to be of longer-term nature than that obtained in domestic markets. Also, when firms go to international capital markets, they become more transparent, providing domestic investors with better investment opportunities. Aside from these positive effects of internationalization on domestic markets, there are also some negative ones. For instance, the listing of large local firms in international markets can have a negative impact on domestic market trading and liquidity, as trading activity migrates abroad. Moreover, financing in international markets is volatile, with the risk premium increasing substantially during crisis periods. Foreign bond financing tends to be denominated in foreign currency, exposing issuers to currency risk. These factors have led many to link financial globalization with crises. There is an important relationship between financial globalization and the development of countries . The beneficial effects of financial globalization are more likely to be detected when the developing countries have a certain amount of absorptive capacity. Preliminary evidence also supports the view that, in addition to sound macroeconomic policies, improved governance and institutions have an important impact on a country’s ability to attract less volatile capital inflows and on its vulnerability to crises. International financial integration should, in principle, also help countries to reduce macroeconomic volatility. The available evidence suggests that developing countries have not fully attained this potential benefit. Indeed, the process of capital account liberalization appears to have been accompanied, in some cases, by increased vulnerability to crises.         Globalization has heightened these risks, since cross-country financial linkages amplify the effects of various shocks and transmit them more quickly across national borders and this is the case of Arab stock market. That’s why those countries must continue to fly their international financial integration with caution in order to protect their markets from risks of financial crisis.  References - Philip Arestis, 2005, FINANCIAL LIBERALISATION AND THE RELATIONSHIP BETWEEN FINANCE AND GROWTH, university of Cambridge, CEPP WORKING PAPER NO. 05/05, England, P2. - François-Xavier Bellocq, 2013, Les pays émergents dans la globalisation financière : rupture ou continuité ?, Agence française de developement, France,P4-5. - Gabriel MOUGANI, 2012,An Analysis of the Impact of Financial Integration on Economic Activity and Macroeconomic Volatility in Africa within the Financial Globalization Context,Working paper series N°144, African Development Bank, Tunisia. - Said M. Elfakhani and others, 2003, Globalization and Investment Opportunities: a Co-integration Study Research Journal of Finance and Accounting                                                                                                                                    www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.2, 2016  41 of Arab, U.S. and Emerging Stock Markets, American University of Beirut. - Ibrahim Onour,The Global Financial Crisis and Equity Markets in Middle East Oil Exporting Countries, The Arab Planning Institute, Kuwait. - AMF Annual report, 2010. - AMF Annual report, 2011. - AMF Annual report, 2012. - AMF Annual report, 2013. - AMF Annual report, 2014. - AMF Annual report, 2015. 

The Impact of Financial Globalization on the Arab Capital Markets :Analytical Study (2010-2015)

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The Impact of Financial Globalization on the Arab Capital Markets :Analytical Study (2010-2015)

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