How will the Gulf bourses respond to a war?

After a very good run in 2002, particularly when judged against the bear markets prevalent in global stock markets, the Gulf bourses have been largely treading water so far in 2003.

It does not require too much analysis to reach the obvious conclusion that war is now uppermost in the minds of investors, and that almost everyone has decided to wait and see what happens in Iraq. Now that Washington has indicated that events are 'a matter of weeks and not months' even the most impatient investor is happy to wait on the sidelines.

Yesterday's Emaar Properties press conference at the Dubai Financial Market was a case in point. Now admittedly trading in Emaar shares had been suspended for the day, therefore eliminating one of the most active stocks, but trading volume was almost non-existent.

This week's three-day Eid holiday is another reason not to expect much market action in the near future. However, if as Emaar chairman Mohammed Alabbar predicted on Saturday, the war is a short one then the Gulf bourses should spring back to life with a vengeance.

High oil prices - and we are back at two-year highs again - and low interest rates are a potent cocktail for Gulf economies. Any war damage to Iraqi facilities would keep oil prices higher, and for longer, than some commentators assume.

With the removal of the uncertainty of war then GCC bourses should surge in value, at least back to 1998 levels and probably beyond. That assumes that a war does not destabilize the politics of the region in any meaningful way, or at least not in a negative way that damages trade flows.

In the meantime, currently unoccupied investors should be dusting off their calculators and swapping ideas with their brokers. Any weakness in prices during a war should be treated as a buying opportunity, though now is probably the time of maximum uncertainty and a real bargain hunter should buy now.

But the low volumes currently traded on GCC bourses suggest that safety and not speculation has the upper hand.