Where next for the GCC stock markets?

Many Arab stock markets have been among the world's best performers in the first half of the year thanks to the quick war in Iraq, the recent cease fire in the Palestinian territories, and the impact of continued high oil prices on corporate profitability.

Investors are now apt to wonder if the good news is now largely in the share prices. Can things really get even better in the second half of 2003?

The answer is probably that it depends which bourse you are talking about. The Kuwait Stock Exchange is up 51% in the first half of 2002, after a 39% gain last year. A correction thus looks overdue as the violent wobbles of the past two weeks suggest.

Saudi Arabia is harder to call. Up 43% this year, following a modest 3% rise in 2002, the Tadawul All-Shares Index still probably has further to climb. The drivers will be strong oil prices, high liquidity, good corporate profits, low interest rates and the lack of alternative investments. But with the market on a price-earnings ratio of 20, the upside may be limited.

The picture in Oman is similar, although a 24% first half rise was matched by a 26% improvement last year. Likewise in Qatar the Doha Securities Market is up 28% in the first six months of 2003 after a 37% surge in 2002.

However, the best place for investors to look for opportunities is probably the two GCC bourses which have not so far seen much of an upturn. Both the UAE and Bahrain only gained by 7% in the first half of 2003, and that appears to leave the two rival claimants for the crown of regional financial and trading hub significantly undervalued relative to the other GCC markets.

Perhaps the Dubai 2003 IMF and World Bank meetings at the end of September will serve to focus investor interest of what is happening in the dynamic UAE economy. Similarly the arrival of Formula One motor racing in Bahrain might have a similar effect early next year.

For to catch up with Saudi Arabia and Kuwait these bourses need to put on more than 25% in value, and the chances must be that they will do so this autumn.