Why GCC stocks are the best investment this autumn

September and October are traditionally volatile months in the stock markets of the developed world. Furthermore, a strong post-war rally in stock prices in the UK, Europe, Japan and US now looks to have run out of steam with an economic upturn still elusive.

By contrast GCC stock markets offer a contrarian alternative. That is to say GCC bourses perform best when things are going badly in the capital markets of the developed world.

Why is this so? Partly this is because when markets slump abroad, wealthy local investors tend to invest their money closer to home. Also, market slumps abroad are often linked to oil price hikes which are good for the GCC and bad for the rest of the world.

Right now there is another force behind the advancing GCC stock markets: economic reform. This is taking place at a number of levels, from the dramatic privatization of the Saudi Telecommunications Company to the new Saudi Capital Markets Law that will reorganize the local bourse into a more open and transparent institution.

Over in the UAE capital markets' reform arguably has even further to go, and the omens are good. A high-level committee is advising on structural reforms to get this market moving in terms of trading volumes which can only advance a modest market capitalization.

Of the three main GCC bourses, Saudi Arabia, Kuwait and the UAE, the latter has a price/earnings ratio of below 15 compared with 20 and 25 in its more highly traded counterparts. Stock price advances in the first half of this year of 10% in the UAE and 45% and 58% respectively for Saudi Arabia and Kuwait suggest that the UAE should be a big winner this autumn.

So expect any downturn in developed stock markets to benefit local stock markets this autumn. Some of them have already had a good run this year but there may be some way to go before the top of this stock price cycle is reached.

Buying into local stocks can be tricky as information on individual companies often is difficult to obtain. But there are a number of well-managed local mutual funds that offer the advantages of a diversified holding and generally are open to foreign ownership.