Global equity woes hit GCC bourses

The appalling carnage in global equity markets over the past week, which plumbed depths not seen since September last year, sent a mild shock wave through the GCC stock markets.

Saudi stocks ended the week down by 1.8% and Kuwaiti shares were unchanged after their recent bull run. Elsewhere, Oman and Qatar managed marginal increases, while Bahrain shed 1% and the UAE was down 0.5%.

Local investors now have to ask themselves whether the international downturn in stock market prices will now affect the GCC markets, or whether the local markets will side step international problems and could even gain at their expense.

Recent history suggests that the GCC stock markets are completely separate from the global markets, and will continue to follow their own path. This tends to map the ups and downs of the oil market, and perhaps this is the better predictor of likely local stock market movements.

For certainly the rather unexpected hike in oil prices to $25 per barrel this year has been the driving force behind the upturn in GCC stock market prices. True, there have been other factors. Economic reforms are moving forward, and local investors have few alternative international options.

So providing oil prices hold up in the second half of the year, GCC bourses have the capacity to increase further in value. However, if global financial markets get into greater difficulty there could well be a pause on behalf of local investors while they assess what is going on, and that might extend the traditional summer slowdown into the autumn.

Maybe we have already seen all the action in GCC equities that we are going to see this year. Oil prices have been anticipating a global economic recovery, and if that does not come through, then oil prices will track lower and with them GCC share prices.