UAE stocks drift, Saudi shares decline

Last week Saudi stocks fell by 2.4% due to disappointing Q3 earnings from Saudi Basic Industries Corporation and the Saudi Electricity Company. Meanwhile, the Emnex index was down fractionally at 2,821.57 points.

The Saudi market is now 62% up on the start of the year compared with around 70% at its high point; the Emnex is 29% up so far this year and still hovering at an all-time high. So why has the boom in stock prices come to a halt this autumn?

One theory is that GCC investors are putting their money back into Western markets in view of the recent rally in share prices. Indeed, this must be a factor as the past six months have seen some stellar gains in Western share prices.

There is also an argument that the Saudi market and Kuwait too, have become overvalued. The average Saudi price/earnings ratio topped 25 at one point. By contrast the UAE is still on a fairly modest p/e ratio of 17.5.

However, with many Western market analysts pointing to stretched market valuations, it could well be that these markets will be the next to see a market correction. That might give another injection of life into the GCC bourses.

On the whole, UAE investors have been more conservative and cautious about fundamentals, such as profits, than investors in Saudi Arabia and Kuwait. Thus UAE shares may have further to rise and prove more resilient to negative news.
Indeed, with high oil prices looking increasingly likely for the foreseeable future then the outlook for GCC shares should still be very positive.

It may be that markets have just got ahead of events in Kuwait and Saudi Arabia. There are also worries about overheating in the UAE with too much real estate construction, and that has impacted negatively on shares such as Emaar Properties and Union Properties.

But for the medium term selected share buying in key GCC markets looks at excellent investment at these price levels, and any market weakness should be seen as an opportunity rather than a problem.