War and real estate keep GCC stocks down

Most GCC stock brokers will tell you that two factors are currently depressing the local bourses: war fears and real estate.

Equally the experts agree that without these two factors the GCC stock markets would be booming. High oil prices and high investment levels are fueling economic growth which is not presently reflected in local stock prices.

Indeed, price-to-earnings ratios and dividends remain at attractive levels, although prices have moved sharply away from the lows of 1998. Once the war clouds are shifted from the Gulf region surely the local stock markets will be one of the biggest gainers.

However, the real estate factor may still persist. With mortgage rates at 40-year lows and real estate markets like Dubai and Bahrain only recently opened to expatriates, money is pouring into real estate.

The plain fact is that investors are choosing to put their money into bricks and mortar rather than shares. How long will this persist? And will investors also buy some local equities?

With deposit account interest rates so low then surely some investors will be tempted to put their cash into shares. Real estate is far more illiquid in that you can not just switch your money out by calling a broker.

But it may well be that local quoted companies have to increase their dividend payments to attract real estate investors back to equities. For as the real estate market develops yields will probably fall making dividends more attractive.

Again equities have a major advantage over real estate in that dividends are paid into your bank account and do not require all the additional hassle of renting out a property.

So the GCC love affair with property may cool down or indeed be translated into a passion for real estate shares and property investment funds. More optimistically still, the economic growth and capital circulation stirred up by real estate activity is likely to prove a long term stimulus to local capital markets.