Bright prospects for UAE, Kuwait, Saudi in 2002

The three largest bourses of the Middle East, Saudi Arabia, Kuwait and the UAE have prospects for further big advances in 2002, with the UAE offering the best opportunity for a significant improvement in share values.

As markets re-opened after the Eid Al-Fitr holiday the Kuwait Stock Exchange passed the 1,700 point barrier for the first time since September 11, and the Saudi NCFEI index hit 2,363.39 points, 4.6 per cent higher than at the start of the year.

Meanwhile, the UAE stock market opened with a spectacular surge in trading activity with 1.27 million shares changing hands at the Dubai Financial Market on Saturday worth $6.5m.

Why should investors choose to buy now? There seem to be three main reasons.

First, interest rates have dropped to 1.75 per cent while GCC shares typically pay high dividends in the range of four to six per cent. Secondly, the outlook for GCC economies in 2002 is much brighter than in many parts of the world. Governments have committed to maintain the higher spending levels of 2000 and 2001, and will not have any trouble in doing so.

Thirdly, that all-important, but hard to tie down factor of confidence has returned. Perhaps investors just dislike the performance of foreign shares, or they just note all the construction activity going on around them and like what they see. It is the same story in the buying of luxury cars that reached an all-time high in October and November, hardly an indicator of recession.

But perhaps there is one more point to consider, and that is the actual outlook for oil revenues. It is increasingly clear that Opec and non-Opec producers will deliver a two million barrels per day cut in oil output from January 1. That will maintain an orderly oil market and prevent an oil price collapse.

So 2002 will not be a return to the $10 per barrel oil price of 1998. Indeed, higher government spending next year may be enough to bridge the gap before higher oil prices return, and thus the expansion of GCC economies that began in 2000 can continue into the middle of the decade.

Certainly the rash of new projects and the projects likely to go ahead in 2002, such as the $20 billion Saudi Gas Initiative, give little cause for concern about the immediate future.

In that case, GCC shares are ludicrously cheap, and the markets should really boom in 2002. And the main problem for investors will be finding enough shares to buy, as most shares are tightly held. Standby for some big IPOs, the market is ready for it.