A great year for GCC stocks so far

In the year to date GCC stock markets have delivered fantastic gains, perhaps too good in some cases and a bubble could be building in Kuwait. The Kuwait Stock Exchange is up by 46% this year. Saudi Arabia is next, up by just over 18% and Qatar is up by almost the same amount.

Lagging behind, although not for any discernable good reason, are the UAE, Bahrain and Oman, higher by 5%, 5% and 10% respectively. Maybe the smart money will soon exit the frothy KSE and invest in the booming UAE economy.

Kuwait analysts are worried that the KSE has overdone it. They say excess liquidity, problems in foreign capital markets and low interest rates have pushed Kuwaitis into local stocks and also real estate as there are few other investment opportunities.

Indeed, it is certainly a feature of the GCC stock markets that wild booms can be followed by big crashes. Kuwait saw this as recently as in 1998 and its market effectively destroyed itself back in 1982 by margin-lending and huge speculation.

Moreover, it is not clear that the reconstruction of Iraq will benefit Kuwait more than the UAE, for example. Would-be exporters to Iraq are already finding that the port and airport infrastructure of Dubai is more suitable for their purposes than Kuwait City.

Thus many analysts argue that Kuwait could see a severe correction later this year, particularly if oil prices trend downwards.

On the other hand, the rise in the Saudi Arabian bourse may prove more enduring, especially if economic reforms continue and the Saudi Gas Initiative is launched. But the real excitement should be in the smaller GCC bourses that have not yet had such a good 2003.