All the best investments are in the Gulf states

This year is proving another real downer for serious global investors, with a falling US dollar now adding to the hazards of international financial markets and giving gold a fillip.

One UK Sunday newspaper noted this week that any investor who had consistently done the opposite of what the City experts recommended over the past year would have fared well. Indeed, AMEInfo columnist Dr Marc Faber, who is as contrary as they come, has been more or less spot-on with his gloom.

But GCC stock market investors have had nothing to grumble about at all this year. The UAE is a laggard with a mere 17.5 per cent increase so far for 2002. Kuwait is the stellar performer with a jolly 22 per cent rise. Indeed, local mutual funds are showing their best performance for some years.

Two factors appear to be at work. First, even before September 11th the GCC stock markets looked a good option, with low earnings multiples and good dividends. After, September 11th it was a real no-brainer with world markets in the doldrums and Arab capital set to stay at home, if not returning as well.

Second, the oil price continues to be far stronger than most observers reckoned at the start of the year. That is always good for local business confidence, orders and therefore profits and share prices.

So what could bring this party to an end? Share prices could rise too far, or oil prices could plummet, but neither has happened yet.

It could be that a sudden rise in interest rates could remove the attractiveness of equities, and bring about a big collapse in share prices. But all the indications are that the US Federal Reserve will keep interest rates low until its own economy is really motoring, and that seems far from evident.

Indeed, with GCC stock markets still quite a long way short of the highs touched in 1997, the stock markets look like a good place to invest funds in the short to medium term.

However, nobody should forget what happened to the Kuwait, Oman and UAE bourses in 1998, and think that it could not happen again. So buy now while prices are still cheap, but don't forget to sell out later before the inevitable correction follows. And in the Middle East a stock market correction can feel like a hammer falling on your head.