Gulf stocks rally on UN resolution on Iraq

Most Gulf stock markets rallied a little last week on news that Iraq had decided to accept the unconditional return of United Nations' arms inspectors which removes the immediate threat of war.

The Kuwait Stock Exchange closed the week up by 2.4% to 2,162.8 points, while the main Saudi Tadawul All-Shares Index rose marginally to 2,543.95 points. Qatar ended down 0.76 points, and Oman was almost unchanged at 180.49 points.

However, the good news on privatization has also cheered investors with big announcements last week from Saudi Arabia and Qatar. The latter revealed plans to sell-off petrochemicals and steel, and the kingdom promised to privatize a list of 20 economic sectors.

Doubtless the news that part of the $25 billion Saudi Gas Initiative is set to go ahead will cheer investors further this week. The SGI and the privatization programme are the linchpins of economic reform in the kingdom and promise to dramatically reform economic management through private and foreign investment.

However, security concerns are still not far from the minds of Gulf investors and this is still holding back the commitment of funds to the regional capital markets. It is only too easy to imagine a scenario, which is probably the most likely one, of obstruction of UN officials leading to an invasion by allied forces led by the US.

This sort of uncertainty always hits financial markets hard, and local stock market investors are very aware of this clear and present danger.