Investors pile into Middle East stocks

New record highs in Amman and Riyadh last week continued the amazing surge in Middle East bourses since the US-led invasion of Iraq started a rally in share prices.

In Saudi Arabia a third all-time high in as many weeks saw the Tadawul All-shares Index close at 3,381.09 points with blue chips gaining across the board.

Saudi Telecoms is now 94% up on its IPO issue price at the beginning of the year, and Saudi Basic Industries Corporation gained 6% last week alone. Bakheet Financial Advisers cited the continued high oil price and optimism about future profits as reasons for the climb in share prices.

Even the collapse of the $25 billion Saudi Gas Initiative last week failed to impact investors who seemed more focused on the short term. However, the loss of the biggest foreign direct investment project in economic history will have future repercussions for the kingdom in terms of lost revenues and a deflection of investment to other places, Iraq being the obvious alternative.

But the International Monetary Fund now predicts 4.5% GDP growth for the Middle East this year, remarkable in a year marked by the war in Iraq. This gives the region a better economic outlook than the Euro zone, Japan, or even the USA, and may justify further stock price rises.

Certainly bourses such as the UAE still look undervalued and need to double to reach 1998 valuation levels. Last week saw advances in UAE share prices but much larger increases should be imminent.