Stock markets in the Arab Gulf region were mixed through November, with Qatar, Saudi Arabia and Kuwait posting 10-25% gains, Bahrain flat, and Oman and the United Arab Emirates with losses on the MSCI index.

The recent meeting of the Organization of the Petroleum Exporting Countries (OPEC) revealed further fractures as Qatar quit the group, and remaining members, no longer in control of the direction of world oil prices, geared production toward the estimated US$90-per-barrel break-even price for budget balance.

On the geopolitical front, Saudi and UAE support for the legacy Yemen government’s fight against Houthi rebels came under US and Europe diplomatic and military challenge, as the United Nations convened an initial round of peace talks in Sweden.

As money managers consider their 2019 regional weighting beyond technical index changes, the International Monetary Fund also came out with dual studies on the financial-sector and foreign-investment climates. They highlighted gaps with emerging-market peers that hamper growth, diversification and inclusion, and the findings reinforce near-term aversion that will persist after reallocations temporarily lift performance.

The IMF paper argues that outside Saudi Arabia, financial-system development lags economic fundamentals, with dominant banks and missing non-bank institutions like pension funds and insurers. Debt markets are nascent and equity activity is sizable but narrow, with large state companies the main participants. Small businesses’ and women’s credit access is minimal, in part because of limited knowledge.

Overdue reforms include government bond yield curve creation, tighter corporate governance and investor protection rules, and wider international ownership scope.

Total Gulf Cooperation Council (GCC) bank assets are $3 trillion, about 200% of gross domestic product, in line with other emerging economies, with the non-bank system share at 20%. The UAE sector is biggest and Oman the smallest.

Islamic finance has grown at a 10% clip over the past decade, double the conventional rate, with large-company funding the preferred business model. Saudi Arabia is an exception, with a half-dozen non-bank intermediaries, and aims to place sovereign wealth money in local hands now chiefly placed abroad. It is the leading stock market in terms of capitalization and turnover, but Qatar and Kuwait are ahead in relation to output.

The GCC just started to issue government bonds to cover fiscal deficits the past five years, and private activity is negligible at 5% of GDP as corporates tap global markets instead.

Scaled by population, the number of equity listings is particularly meager in Oman, and in 2017 the region had just 20 initial public offerings worth $1 billion. Market concentration is high, with banks and state-owned enterprises around half of capitalization, and buy-and-hold primary investors constrain share free float.

Foreign ownership is around 5% overall, with Oman and Saudi Arabia still imposing minority company positions. Household borrowing relies on informal family and work channels outside banks, and 60% of youth have accounts compared with 80% of adults, and small firms get 5% of loans. This inclusion gap is identified as a policy priority, but officials must further expand credit bureaus, overhaul insolvency codes and introduce fintech (financial technology) innovations, the survey insists.

Improved stock-market regulation paved the way for the UAE, Qatar and Saudi Arabia to move from the MSCI frontier to core index, but implementation of governance and protection norms remains “weak.” Debt markets lack repos and competitive auctions, and robust disclosure and ratings systems.

Currency instruments have been thwarted by the dollar exchange-rate peg, and Bahrain has the only sizable mutual-fund sector, at one-quarter of GDP.

Life insurance is “negligible” as a possible catalyst for long-term fixed-income allocation, and private pension plans are rare. A partial program to remedy these deficiencies would bring modernization benefits that raise per-capital income growth at least half a percent, the document concludes.

Broader trade and investment criticism was also pointed in a separate study, which noted “limited progress” in shifting from oil exports at two-thirds of the total and integrating into global supply chains. The intra-GCC amount was 10% of non-oil commerce and has further contracted with the Qatar embargo.

Inflows of foreign direct investment have “stalled” despite rich natural-resource endowments, with lagging worker skills and productivity. Outside hydrocarbons, they are skewed as a result toward real estate, where a slowdown in the Dubai hub in particular may match the faltering financial-market foundation.