Saudi and Kuwaiti shares surge ahead

Last week the two biggest stock markets in the GCC had their most active week since September 11 with mounting optimism about the outlook for oil prices combining with a bullish view about the prospects for economic reform.

Saudi Arabia's Tadawul All-Shares Index jumped by 1.9 per cent to close at 2,534.48, its highest level in six months. Meanwhile, the Kuwait Stock Exchange rose by 1.2 per cent to 1,812.2 points, its highest level since November 1998.

In the Kingdom Bakheet Financial Advisers reported that the market was encouraged by rising oil prices, an increase in the money supply, global economic recovery, and economic reforms.
Last week share trading on the Saudi bourse rose by 37 per cent to USD914m with 20.5 million shares changing hands.

But BFA told agencies that political risks and uncertainty combined with a slow economic recovery dependent on oil prices, made it hard to say whether this was a new uptrend in the Saudi bourse.

Over in Kuwait daily trading volumes fell from USD80 million to USD50 million last week, but this was still ahead of last year's average of USD48 million.

Brokers are also cautious in Kuwait and most expect a lower market gain for 2002 than the 27 per cent rise witnessed in 2001. However, investors who have lost money in global capital markets recently may still be attracted to the KSE which seems to be on a winning streak with limited downside potential.

The bullish case for both markets is simple. Opec will continue to push oil prices higher, and any US military action against Iraq will only increase this effect. Rising oil revenues will be good for local business and therefore justify higher share prices which will be fuelled by increased cash flows from oil revenues. This is called an upward spiral, and could sent share prices back to the boom levels of pre-1998.

But the bears can always manage the odd growl. What happens if the situation in Palestine gets worse, the US gets locked into a long war in Iraq and Saudi Arabia fails to get its USD25 billion foreign investment in the gas fields? That would clearly be negative for GCC stock markets.

However, let us consider a final plea for some optimism from the chartists who track market performance over time. The share graphs of the GCC's major markets show a classic business cycle profile that came unstuck in 1998 and began an upward track in 2001.

The charts say the share price rise seen so far in GCC markets has a lot further to go and has hardly started in markets such as the UAE and Oman.