Saudi peace plan fails to ignite shares

The Eid Al-Adha holidays seem to have distracted stock market investors from assessing the likely impact of the Saudi Arabian peace plan on the Middle East.

Hailed as the most significant development in a decade in some quarters, perhaps investors feel that any exhuberance on their part might be deemed irrational. However, this kind of initiative is precisely the kind of shift in the big picture that generally preceeds a stock market boom.

Not that you would believe it by studying the Tadawul all-shares index. It closed at 2,446.82 last week, just 0.7 per cent higher than on January 1 and still much lower than its all-time high of 2,608.58 recorded on September 1 last year.

The Saudi Arabian stock market has the biggest market capitalization in the Arab world at $73 billion, and enjoyed a considerable boom through 2000 and 2001. But with oil prices hovering in the $20-22 range and government spending increasing, there is reason to be optimistic about the outlook.

Maybe stock watchers are waiting to see what happens to the $25 billion Saudi Gas Initiative which has assumed enormous importance for the economy both directly and indirectly. The eight major oil companies currently appear to be at loggerheads with the Saudi authorities over their concessions, and a March deadline looks sure to be missed.

However, in matters of high politics nothing is ever entirely as it seems, and it could be that the SGI plan makes it after all. If that happens, and if the Saudi peace plan moves forward, then the Saudi bourse will boom. For the economic reform agenda will then be in the accendant, and liberalization of the Saudi economy will prove enormously helpful to local and regional business.