GCC stocks spike too high amid volatility

When investors think that they can not fail this is a time to start asking serious questions. At the present moment GCC stock market investors believe rising oil prices are a one-way ticket to higher share prices, and such is the momentum of their buying that it is self-fulfilling.

The problem is that the upward surge is now happening too quickly. It has become the classic almost vertical rise in share graphs that you always see just before a bubble bursts.

This is back to Cisco Systems' share graph in early 2000, or the whole Nasdaq high-tech market itself - which still languishes at more than 60% off its 2000 peak over five years later.

So are the GCC bourses getting a little irrationally exuberant? Well, Qatar is a great place but are its quoted companies really worth 125% more than three months ago? The UAE is not far behind with a 49% leap in share values, followed by Saudi Arabia up 28%, Oman up 24%, Bahrain up 21% and Kuwait trailing with 18% growth.

If this continues for the whole of 2005 then UAE stocks will triple in value and Qatari stockholders will find themselves five times richer than at the start of the year. Clearly this is impossible. It is not going to happen.

Perhaps we might have a soft landing? Capital markets just do not behave that way. They are driven by greed and fear, and over-react on the upside and on the downside.

But what could cause investors to cash in their shares? The obvious answer is not very much. When markets are this extended it takes only a single event to send things into reverse. Higher interest rates alone might be enough to bring investors to their senses.

Indeed, the authorities might be well advised to cool things down before matters get out of hand and serious money is lost.

A nasty speculative bubble is growing in GCC share prices, and when it breaks the money will probably head for an alternative asset class such as real estate, fuelling another bubble as happened in the US after then dot-com crash.