Why are GCC stock markets rising as war looms?

Since the start of 2003 the Saudi Arabian stock market has risen by 4.4%. In Kuwait rich investors may be packing their bags to leave the country in the event of war, but they are piling into local stocks. The UAE bourse has also been very solid recently.

What is going on? Surely a war in Iraq is about to destabilize the Middle East with incalculable repercussions for internal security, according to the Arab League.

Investors simply do not agree. Most serious investors in the GCC reckon a war in Iraq will be short and that an economic boom will follow. They note that several years of high oil prices are already fuelling their local economies and that poor world stock markets and the impact of 9/11 have sparked a local investment boom.

It also requires only a small leap in imagination to see Iraq not as a threat but as a major commercial opportunity, post-Saddam. Similarly the economic reforms instanced this week, for example, by the hugely successful privatization of Saudi Telecom bode well for the future.

Indeed, the more than three-times oversubscription of the Saudi Telecom IPO in the face of a conflict in Iraq - and this was a genuine man-in-the-street share purchase - says it all. There is a mounting appetite for share ownership in Saudi Arabia.

That will allow many more IPOs to go ahead, and for the government to privatize a series of companies to reduce the public debt mountain. A virtuous circle of greater investment and debt reduction, and higher GDP, will be created.

Over in the UAE the Abu Dhabi Securities Market quietly announced its ambition to boost the number of quoted stocks from 26 to 45 this year. This is a major step forward and should push the UAE stock market's capitalization more strongly ahead of Kuwait's this year.

So what is likely to happen to GCC bourses post-Saddam? Surely the scene is set for a stock market boom in the GCC, and those people buying now have probably got it right.