Kuwait's vigour may be a marker for 2003

The Kuwait Stock Exchange opened on Sunday at 2342.90, close to a six-year high, despite the proximity of an imminent war next door in Iraq.

Is this exuberance really irrational? Or have the Kuwaiti investors grasped something that has so far eluded investors in the rest of the GCC where markets remain range-bound?

There is some reason to believe the Kuwaitis are ahead of the game, and that 2003 could well be a bull year for Gulf stock markets. It certainly would be a bull year without the Iraqi factor.

Oil prices are presently at a year-high, and will come in comfortably higher than even the most optimistic forecasts for 2002. This has laid the foundation for an investment boom in the region, whether in the oil and gas sectors or real estate.

The nice thing about investment booms is that they ripple out into all sectors of an economy. Oil men spend in restaurants so restaurants do well, for example, even though they have no direct link to the energy sector.

So what the KSE investor may be saying is 'OK let's assume that Saddam either retires voluntarily or is forced to retire. Then the only way is up'.

Is this so irrational? A post Saddam Iraq would not flood the world with cheap oil. It would not have the capacity. In fact Iraq would be more likely to become a big new spender on goods and services in the Gulf.

That would provide an already booming Gulf region with a further boost, and justify higher share prices. Given relatively modest price/earnings ratios and high dividends then Gulf equities are a logical choice for local investors in present market conditions. And how many other good investment options do they have?