Markaz launches First of Its Kind GCC Index for Volatility


Markaz launches First of Its Kind GCC Index for Volatility Kuwait Financial Center (Markaz) has recently launched a new innovative index to measure stock market volatility in the emerging market and GCC region. The index is code named as MVX and has a base date of 1st January 2004. Markaz has developed a proprietary model to construct and maintain the index. The model considers many statistical properties of the underlying GCC stock markets in order to calculate the volatility index. The index will be published at least on a monthly basis. According to Markaz report, Oman stock market has the highest volatility level at 2119 followed by Abu Dhabi (2075) and Dubai (1909). Among the GCC countries, Kuwait enjoys lowest volatility at 502. Volatility levels across GCC showed signs of slowing. Global markets and emerging markets however showed signs of increasing volatility. Saudi Arabia showed marked reduction in volatility as MVX-Saudi Arabia at 1042 represented a reduction of nearly 4% from the previous month level. The current index level for Saudi Arabia is nearly 16% lower than the long-term average. Kuwait continues to be a stable market in terms of volatility with the current MVX-Kuwait at 502 being 38% lower than what it was one month before. Qatar’s volatility dipped by 17% during June to 1342 and is now 32% lower than its long-term average. Dubai and Abu Dhabi volatility index declined by 3% and 6% respectively during the month. Both the indices are below the average MVX. Oman has been the only market wherein the volatility has increased during the current month. The MVX at 2119 is higher by 16% as compared on a Month over Month basis. The index is close to its average mark. Markaz’s earlier research (Managing GCC Volatility) has established the fact that GCC stock markets are one of the most volatile stock markets in the world even out pacing Emerging markets. Volatility is a risk measure used to gauge the degree of fear that prevails in stock markets at any point in time. It can be measured through many ways using advanced application of statistical tools. From a stock market perspective, higher volatility is viewed riskier compared to lower volatility. Much like returns, volatility also has a “wave-like” pattern alternating between highs and lows. Higher levels would indicate investor fear while lower levels would indicate complacency. It will certainly be useful to know if GCC investors are being gripped by fear or complacency at any point of time. It is an emotional gauge. It is certainly possible to formulate trading strategies built around the evolution of volatility. In most of the cases, a rise in volatility signals impending negative performance and vice-versa. However, different markets react with different lags. At a broad level, reducing exposure during periods of increasing volatility and vice-versa is a suggested strategy. ### About Markaz Kuwait Financial Centre 'Markaz', with total assets under management of over KD1.20 billion as of December 31, 2006, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997; and was recently awarded a BBB+ corporate rating by Capital Intelligence Ltd.