Bahrain shares have room to improve (page 1 of 3)

The post war optimism and the high oil prices in 2003 - despite the expected fall in oil prices after the Iraq war- benefited the regional stock markets.

Given the liquidity in the system, lack of viable investment opportunities abroad and the prevalent low interest rate regime seems to have resulted in persistent investor interest in the regional stock markets in 2003.

The year 2003 was an exceptional year for stocks across the Arab World. However, the Bahrain stock market lagged behind its regional peers and was unable to emulate the impressive gains as it was up only 28.2%.

Overlooking its counterparts in the BSE index, insurance sector recorded outstanding performance in the year 2003 with the BSE insurance sector index gaining 58.3% over the previous year. Al-Ahlia insurance company was the highest gainer with stock appreciating by 82%.

The other two major gainers were Bahrain National Holding Company which rose by 56.4% and Bahrain Kuwait Insurance Company with a gain of 52.5%. The laggards in the sector were Arab Insurance Group which lost 21.6% despite its positive performance in the first three quarters of 2003.

Similarly, the banking stocks also recorded outstanding performance in the year 2003 with the BSE commercial banks index gaining 49.7% over the previous year. AUB, which recorded stellar performance in the third quarter of 2003 with its net profit rising by 52.4% to US$70.9mn, experienced a sharp increase in its stock as it rose by 75.8% in 2003.

The other notable gainer in the banking sector was Bahrain Islamic Bank, which notched up a gain of 54.3% in its stock price on the back of improved results in the first nine months of 2003.

At the same time the Bank of Bahrain and Kuwait up by 42.7% and National Bank of Bahrain gaining by 32.8%. The only loser in the sector was the Bahraini Saudi Bank (BSB) which lost 23.4% of its value in 2003. The BSB saw its net profit declined by 63% to BD1.42mn in the first nine months of 2003 as compared to the same period previous year.

We expect the banking sector to do well in 2004 as the interest rates start to edge up gradually in 2004 and the banks are expected to widen their spread though with an interval.

The top performers in the sector are expected to be AUB and BBK which are scouting for merger partners in the region followed by NBB and BISB. BSB is expected to be lag behind its peers in the sector in 2004 as it is still yet to recover from its past but may turn out to be a good recovery story.

The booming hotel and tourism sector also fared well with the sector index rising by 41.3% in 2003 over 2002. All the stocks in the sector ended in positive territory. National Hotels Company led the sector notching up a gain of 55% followed by Bahrain Hotels Company (37.2%), Bahrain Tourism Company (35.7%).

The year 2004 is expected to be a spectacular year for most of the stocks in the sector driven by tourism boom in the country as F1 race will attract international tourists. The industrial sector led by Bahrain Flour Mills Co. and Delmon Poultry Co. gain 25.7% in 2003.

The only laggards in the BSE were investment sector and services sector which gained only 12% and 15% respectively in 2003. The gains in the services sector were led by TRAFCO as it surged 99% followed by Bahrain Maritime & Mercantile International which gain 82.5% during the period. Batelco, which had to face competition from newly launched MTC-Vodafone network increased only by 6.8% as it witnessed heavy selling pressure at the end of the year.

The number of listed companies on the Bahraini stock exchange has gradually increased in 2003 and stood at 44 at the end of the year.