Normally rising interest rates attract money out of stocks and so share prices fall, unless investors are convinced that the economy is taking off and so share prices are cheap.
This may be one reason why George Soros sees the US boom in 2004 turning to a bust in 2005. Higher interest rates will bust this particular election-created party. So where will this leave GCC shares?
One answer is that they will go with the flow with money leaving for a more secure home in a deposit account. Another is that money flowing out of the US, and presumably other global stock markets, will be looking for a safe haven and choose the oil economies of the Middle East.
Perhaps the truth is that it all depends on another economic factor: the oil price. If Opec manages to support high oil prices through a Western economic crisis - as it did in the mid to late 1970s - then the virtuous cycle of local money returning home for local investment will be realized.
The omens are good at the moment with Mr Al Naimi mirroring the achievements of Sheikh Yamani in the 70s. In the past the Middle East has often enjoyed a boom while the West was in trouble. Perhaps things will be no different this time.
On that measure GCC stocks should offer an inverse correlation to Western capital markets again, and any weakness will be very short term.
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How would GCC stocks perform in a global stock downturn?
- Saudi Arabia: Saturday, February 21 - 2004 at 08:29
Interest rates are going up. It is a matter of when and not if. So that puts stock market investors in a quandary.
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Peter J. CooperSaturday, February 21 - 2004 at 08:29 UAE local time (GMT+4)
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This article was updated on Tue Mar 27 2007.
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