KUWAIT, 13 September 2004 — Even though the three-month vacation cycle usually reaches its peak during August, the participants in attendance seemed to have been sufficient to help GCC markets continue to navigate upward rather nicely. Corporate profit growth, positive economic reports and unrelenting oil prices kept investor mood upbeat throughout the month, carrying five of the six regional markets higher. Oman remained the exception for the second month running, losing 0.76 percent, according to the Kuwait-based Global Investment House (GIH).
Bahrain headed the region in growth during the month, and even the power outage which gripped the country in mid-August for a day, inflicting substantial costs on the local economy, was not enough to curb activity. The BSE raced ahead of its larger peers, posting its most progressive month yet in 2004, gaining 9.1 percent on the month, bringing its total gains to 25.1 percent for the year.
Elsewhere, the GIH said, the announcement that the Doha Securities Market would be opened up to foreigners seemed to encourage investors back into the Qatari market, aiding it in retaking the lead from the buoyant Saudi market, climbing 5.2 percent during August to 46.2 percent in gains for 2004. There seemed to be no stopping for the Saudi market, as it produced its eighth straight monthly gain. “Continued privatization initiatives by the Saudi government and high oil prices have kept investor interest at its peak,” GIH said.
The UAE market also continued its winning ways, once again surmounting the milestone 6,000-point mark, ending above the benchmark value at 6,019.29 points, up 2.59 percent for the month and 33.71 percent for the year. With this close, the UAE market has become the sole market to have outperformed its whole year 2003 performance, which was up 32.1 percent.
Kuwait also continued higher, bringing about its fourth consecutive monthly gain, backed by strong corporate earnings. The allotment of key contracts to listed companies and breakthroughs on a number of economic fronts during the month, mainly the licensing of the country’s first foreign bank as well as a draft approval of the previously stalled $7 billion Project Kuwait seems to have positively affected investor sentiment.
All eyes will be on two main issues during September. Regional investors will keep a wary eye on the US Federal Reserve, in light of expectations for a third rate hike.
Oil prices will be the other issue in focus during the month, as OPEC is expected to meet on Sept. 15 with a number of important topics to iron out.
“We do feel that with the traditionally low-volume summer season now over, the flow of investors back to their respective markets, coupled with expectations of a robust nine-month earnings season will help offset any movement in either front. Therefore, we favor further gains for the GCC markets in September,” GIH said.
Interest rate cuts were originally brought about by an ailing world economy and high oil prices. However, the GCC region was able to benefit from both, as high oil prices and falling interest rates boosted liquidity and economic activity throughout the region. But heading into 2004, analysts had forecast a general slowdown in the GCC economies, on account of a fall in both oil prices and increase in interest rates.
Fortunately for investors, the stock markets haven’t shed any weight so far in 2004, even with the rising interest rates. Liquidity in the region remains high, and seems set to remain so, as long as oil prices remain elevated and other business activities go ahead as per plan.
In the recent past, the GCC economies seem to have adopted a very proactive approach toward privatization. The government owned companies are opening their doors for public investments.
The booming stock markets in the GCC countries, for the last two-three years, have also paved the way for government companies and family owned businesses to divest their stakes.
Many IPOs in the region have witnessed great response from the investors as some of the issues had been oversubscribed by more than 10 times. This has increased the number of listed companies in the stock markets and thereby adding depth to the regional capital markets. It has also helped private entrepreneurs and investors a great deal by helping them to unlock the value of their investments.
By the end of the year 2003, the GCC stock markets had 435 listed stocks accounting for a total market capitalization of $302 billion. During the first six months of 2004, the number of listed companies has increased to 458 and the market cap of the region has increased by over 23 percent to $374 billion.
Going forward, there will be an increasing trend toward cross listings of companies from the GCC countries which will pave the way for regionalization of the stock markets.
Reports suggest that a law is close to being finalized permitting companies operating in Dubai’s free zones to list on the Dubai Financial Market.
With the new capital market law in Saudi Arabia, the introduction of Bahrain’s Financial Harbor and Dubai International Financial Center, the region seems to be a hot destination for the entrepreneurs and business owners to raise funds from the capital market.
Another progressive month during August produced an additional $9.3 billion in market gains, as market cap breached the $400 billion mark for the first time to reach $407.0 billion, up 2.3 percent over its July level.
Trading activity also rose during the month despite a depleted number of investors in the markets. Despite both the Qatari and UAE markets unable to mirror their July volumes, the region as a whole saw a total of 4.6 billion shares traded during the month, an expansion of 17.0 percent over its July level. Similarly, on the value front, Oman and UAE both registered falling value of shares traded. However, steep increases in the remaining regional markets resulted in a region-wide increase of 37.3 percent in value changing hands in August as compared to July.
Advancers continued to outnumber decliners in regional markets during August. The region as a whole produced 215 advancing stocks, while registering 133 declining ones.