How much higher can GCC bourses go?

The first half of the year has seen some spectacular rises in GCC stock markets with Saudi Arabia and Kuwait leading the way as among the best performing bourses in the world.

Last week the upward march in stock prices continued. But some brokers have begun to ask if the markets are not looking overbought. Certainly the trend towards buying smaller, speculative stocks looks an indicator that these markets may be topping out.

At these levels a sudden set-back, such as a fall in oil prices, would result in a substantial correction. However, as some Kuwaiti brokers point out there are not that many other options for investors, unless you buy into the US recovery story and head for Wall Street.

A more subtle change may be a switch in GCC bourse. The UAE market, trails the performance of the Gulf's two biggest bourses, albeit with a rise of 33% in the year to date.

Perhaps we will now see GCC investors switching their investments into this market, and to a degree this has already started to happen in August. This month the UAE also hosts the IMF and World Bank annual meetings which should raise the profile of the country substantially in financial circles.

UAE stocks also look relatively inexpensive with a price/earnings ratio of 17 and yield of 3%. That compares with a p/e ratio of 30 back in 1998 before the market crash of that year. With oil revenues heading for their best year since 1981 this year, the UAE bourse clearly has some headroom.