JEDDAH, 17 November 2004 — The market capitalization of the Gulf Cooperation Council (GCC) region breached the $450 billion mark in October compared to previous month figure of $420.7 billion. This was mainly due to the increase in the market capitalization of Saudi stock exchange that increased by 11.65 percent in October, according to a report by Kuwait-based Global Investment House (GIH).

The region as a whole saw 3.69 billion shares changing hands in October as compared to 4.55 billion shares in September.

However, the decliners outnumbered the advancers in the GCC markets in October. The region as a whole produced 158 advancing stocks, while registering 208 declining ones. Bahrain and Qatar markets had more advancers than decliners. UAE market had the most adverse advance-decline ratio of 0.39, the report added.

GCC stock markets witnessed mixed trends in October with the third quarter earning results having their effect on the investor sentiments. The Ramadan season had its effect in terms of decline in the trading volumes which is expected to pick up again after the Eid holidays. The oil price remaining above the psychological $50 a barrel mark, strong third quarter results and anticipation of another round of strong macroeconomic numbers have resulted in the strong investors’ interest in the stock markets. The primary market is also witnessing a deluge of liquidity which can be seen in the strong oversubscription levels in the initial public offerings (IPOs), the report said.

Saudi Arabian stock market dream run continues as it headed the region in growth, gaining a whopping 11.61 percent in the month. Saudi stock market is also leading in terms of the YTD gain, registering 65.84 percent growth till October 2004. Bahrain stock market also notched impressive monthly gains of 4.95 percent. However, Qatar and Oman markets registered a decline in October.

The increase in the oil prices continues to augur well for the GCC economies and they are poised to show another round of excellent growth numbers. GCC countries have exhibited increases in their GDP and trade balances as a result of the dual increase in oil production and price levels. The rise in consumer and business confidence levels has also resulted in increased spending levels. All this has percolated to the companies’ performance, resulting in increased demand in the secondary markets.

However, on the other hand, the GIH report said the currencies of GCC region will not be benefited that much from the increase in the revenues and fiscal surplus expected this year as they are pegged to the dollar and have suffered from its weakness. Also the difference between the prices of sweet crude oil and OPEC oil has increased which means that the GCC oil producers have not benefited to the extent it could have as a result of this price hike. There are also concerns that the budget surpluses will reduce the pace of economic reforms in the region. The soaring oil prices and broad weakness in the dollar could also stoke inflation in GCC region and may result in a decline in the consumer spending.

GCC stock markets have been on an incredible run for more than two years. Of course, many factors played into this, some of which were the run up to the war on Iraq, high oil prices, liquidity and falling interest rates.

Regionally, 182 companies reported nine-month profits by the end of October 2004, revealing a hefty 69.8 percent aggregate profit growth across the region. The six listed telecommunications companies have been able to improve profits by 134.9 percent over the nine months period of 2003. Industrial companies across the region have also shown earnest growth of 98.0 percent.

Commercial banks saw an accelerated growth of 46.8 percent during the first nine months of the current year, as the hardening of the interest rates since June 2004 seems to have proved beneficial for some of the regional banks.

“While many may believe that the rally in the regional markets could be dying out, corporate earnings and economic growth are pointing toward the likeliness of a solid performance in the final months of 2004 and into 2005. This gives all the more reason to remain bullish toward the regional bourses,” the GIH report said.