How best to invest in GCC equities

A war is usually a major turning point in stock market valuations, and in the past week global markets have had their strongest rally for many years.

Next there will be a rally in GCC stock markets as investors begin to come to terms with the reality of US-control of Iraq, however undesirable, and that Saudi Arabia has managed to keep control of the oil price.

On any judgment the kingdom's play on the oil market in recent weeks has been quite brilliant. There has been no release of strategic reserves on to the oil market because prices fell before the invasion, so it was not needed. This avoided a post-invasion oil price crash - much feared by Opec members - and has kept the oil supply equation in Opec's hands.

Now with world oil market's still very tight, the prospect is that the $22-28 oil price band will be maintained. That means the outlook for GCC economies is very bright, with high oil prices, low interest rates and more economic reform in the pipeline.

For UAE equities, non-nationals have only three stocks that they can buy directly - Emaar Properties, Oasis International Leasing and Tabreed. All are well run companies with excellent profit growth prospects, and very solid financials.

UAE mutual funds offer the chance for foreigners to own a wider spread of UAE shares - and to participate in the many upcoming IPOs this year. Emirates Financial Services, Shuaa Capital and Daman are all fund managers with good track records.

For Saudi Arabia there are also a few funds available for foreigners to invest in, but direct share ownership is still not open. Thus it is inevitable that the share price rally in the UAE and Saudi will be largely to the benefit of their nationals, although it has to be said that share prices would probably go higher still if foreigners were able to participate more fully.

That said, it may well be that the GCC bourses which are more welcoming to foreign investment - namely Bahrain and Oman - could stand to benefit more from a recovery in investor sentiment towards local equities.