Saudi, Kuwait, break key market barriers

Shareholders in Saudi Arabia and Kuwait were in exhuberant form last week with the Saudi bourse closing at its highest ever level of 2,737.82 points, and Kuwait above 2,000 points for the first time since October 1998.

National Commercial Bank chief economist Said Al-Shaikh told Reuters that higher oil prices and good financial results had fuelled demand for Saudi stocks. He said there was a shortage of shares and that would drive prices higher still.

The Kuwait Stock Exchange has been pushed higher by a broad base of investors, and is well known for its historic volatility. Indeed, the KSE is still 29% off the all-time high that it reached as recently as November 1997.

However, investors show no sign of losing their nerve so far, and the market has benefited from large payments from Iraqi compensation funds that have been invested in the KSE. The big question is how much further the Saudi bourse and KSE can rise in 2002, after rises of 12.7% and 18% respectively to date.

Given the much improved outlook for oil prices and the likelihood of increased oil production due to an improving global economy or regional supply disruption, and it is easy to see why investors have got some wind in their sails. To this must be added the mounting impetus of economic reform and its durable impact on productivity.

For the time being these factors are weighing more heavily in the minds of investors rather than the threat to regional political stability posed by the crisis in Palestine. This is the most obvious factor that could upset the stock market booms in Saudi and Kuwait.