Doha Securities Market: how much higher can share values go?

Last week's headline in 'The Peninsula' daily newspaper said it all, 'DSM crosses 10,000-mark; bull-run continues; up 439.44 points'. Yet only the previous week the situation was in reverse with stocks in 'an unprecedented slump'.

Volatility is clearly in evidence at the Doha Securities Market, the youngest of the Gulf stock markets which was founded in 1999. This relative youth means that the DSM has never had a serious crash in its history, having missed the 1998 Asian crisis due to its non-existence at the time.

However, with shares up 98% so far in 2005 even the most seasoned commentators are beginning to look askance at the outlook. What goes up like a rocket usually falls back to earth on a similar flight path!

The final fuel stage in this lift-off was the granting of share ownership rights to foreigners. This led to an upsurge in local share buying by Qataris. They reasoned that there would be foreign buyers queuing up to buy their shares at inflated prices.

Indeed, a few foreigners did then dive into IPOs like the Qatar Gas Transport Company or Naqilat, only to find the shares selling for below their issue price. Hence, the anticipation of foreign ownership proved a bigger driver of the market than the actual event.

Optimists point to the heroic rises in Qatari corporate profits in the first quarter as a good reason to buy. But they are just not reading the profit statements. Most of the extraordinary profit growth is coming from investment profits from the DSM. In other words, the DSM rocket is fuelling itself.

At this stage it takes only the slightest dent in market confidence to bring the whole thing crashing to earth: a sharp downward move in the oil price, for instance, or perhaps another terrorist incident.

This is not to say that Qatar does not have a great economic outlook. Huge investment in oil and gas is in progress with much more coming up.

But this is part of the problem for the DSM, not a solution. Local confidence in the future has run far ahead of reality, and if historical precedents are anything to go by then the DSM just has to be heading for a big fall.

The irony is that then it will be possible for foreign institutions to buy into well-managed companies with an excellent profits outlook in a stable and secure economy underpinned by massive foreign investment in oil and gas, and a strong US military presence. Perhaps that will be the right time to buy!