* Market is worst-performing in GCC
* Down 28 percent since street protests began
* Dividend yields very high compared to region
* But liquidity too low for many investors to benefit
* Saudi continues to suck funds from smaller markets
By Nadia Saleem
DUBAI, Nov 14 Bahrain's stock market is the
worst-performing in the region this year, but it has a major
attraction: ultra-high dividend yields. Unfortunately, the
market has become too illiquid for many investors to take
advantage of that fact.
The main Bahrain stock index is down 7.6 percent
year-to-date, underperforming all other countries in the Gulf
Cooperation Council: Saudi Arabia, the United Arab Emirates,
Kuwait, Qatar and Oman. Saudi Arabia is up 6.2 percent.
Continuous street protests, led by majority Shi'ites against
the Sunni-dominated government, are dampening investor sentiment
and weighing on the economy. The Bahrain index is down 28
percent since the protests began in early 2011, and has reached
its lowest level since 2003.
Funds have been leaking out of the market, shrinking its
capitalisation to 5.8 billion dinars ($15.4 billion) from 7.73
billion dinars in January 2011.
The country of about 1.3 million people does not have the
rapid population growth needed to spur domestic demand in the
absence of major export industries, so it is considered a
"mature" rather than a potentially high-growth market by fund
In one respect, though, Bahrain's market stands out: the
return on stocks available from their dividends.
Aluminium Bahrain (Alba) has a dividend yield of 14.0
percent based on last year's dividend, according to stock
exchange data; Bahrain Telecommunications (Batelco)
has a yield of 9.5 percent and BBK, a major bank, 6.4
Such yields compare favourably with markets around the
region. Qatar National Bank, for example, has a yield
of 2.7 percent; Qatar Telecom paid just 1.9 percent at
the end of 2011.
"I would look for certain stocks which currently have a
double-digit yield and hold them for the long term, not for
trading," said a Bahraini investment manager, who declined to be
named because he was not authorised to speak to media.
"I would buy Alba, because it is a big industry and fairly
competitive, and Batelco, because of the telecom sector's
But analysts say poor liquidity is deterring many investors
from going after the dividends in Bahrain. The market has traded
just 478 million shares so far in 2012, compared to the 72.5
billion in Saudi Arabia, the Gulf's largest market.
Thin trading volumes make it hard for investors to
accumulate enough of a stock to benefit from the dividends - and
increase risks by making it difficult to get out of a stock if
investors want to redeploy their money.
"Bahrain is an exceptionally illiquid market. There are some
companies with good yields, like Batelco, but the problem is
that it is so illiquid that to have a meaningful position is
impossible," said Shahid Hameed, Global Investment House's head
of asset management for the Gulf region.
"There are few interesting opportunities because the bank
and the telecom spaces are mature, so there's not much growth
there - there's not much happening in Bahrain from an equities
point of view."
Batelco reported a 25 percent drop in profit for the first
nine months of this year, as fierce competition led to a loss of
market share as well as falling prices and revenues.
At some stage, valuations in Bahrain may fall so low that
there appears to be little further downside in prices, making
the high dividend yields even more attractive. But even then,
regional investors may hesitate to enter the market while bigger
markets nearby, such as Saudi Arabia, continue to boom.
"Trading has moved to Saudi Arabia - over 91 percent of the
GCC's aggregate trading value has moved there," said the head of
investment at an Oman-based investment firm.
"There's great value in some of the banks from a yield point
of view, but Bahrain is seen as a mature ex-growth market."
(Editing by Andrew Torchia)