A string of regional issues ranging from defaults to the "Arab Spring" tested investor sentiment, which, moreover, remained vulnerable to external shocks linked to the situation in the advanced economies. This gave rise to what could be termed as the “GCC Paradox”: Even as economic fundamentals remain solid and growth prospects favorable, the market performance was lackluster.

But now a corner appears to have been turned. TASI began to recover lost ground toward the end of last year and has experienced a 17.48 percent rally YTD. Even more encouragingly, market volumes have been on a remarkably consistent upswing since the end of Ramadan. From lows of SR2-3 billion, the daily turnover has risen to the neighborhood SR15 billion on the best days, a level that is high even by historical standards.

Yesterday, the Tadawul All-Share Index (TASI) edged higher by 0.08 percent to 7,539.7 points with market turnover of nearly SR16 billion.

There are concerns that the latest rally will prove temporary as investors reallocate their money across asset classes. There are growing indications that in particular land is losing favor as concerns mount about sustainability and potential taxation. Nonetheless, the performance of TASI is underpinned by very reasonable valuations and attractive prospects, which means that the risk of a bubble developing any time soon is fairly minimal.

Sami A. Al-Nwaisir, chairman of the board of Alsami Holding Group, said: "We are moving forward from the bottom of the stock market (TASI) in an ascending order as we are passing the 7,000-point figure. Thus, the new money with liquidity injected in the market is uplifting the market, which is still far away and premature to hit the top and to think it a bubble. Thus, Al-Nwaisir said: "So far, and as we didn't reach yet the various previous peaks, it is real rather than a bubble so far and up to now the market is very attractive and you might think it is at discount not at premium."

Echoing Al-Nwaisir's views, Ragheb Othmani, senior officer, asset management at the Riyadh-based Bakheet Investment Group, said: "We couldn't consider the situation as a bubble yet, the valuation ratios P/E, P/B and others are still in fair territories for Tadawul index in general, but if we witness more increase in stocks prices in the future we may reach overvalued areas.”

Othmani said psychology in Saudi market has changed compared to 2011, which is a good thing; investors have started focusing more on stocks valuation rather than geopolitical situation in the region. He pointed out that other positive thing is oil prices, which have gone up, aside from the positive signs that indicate improvement in euro region debt crisis.

Paul Gamble, head of research, at Jadwa Investment, said there are good reasons for the growth in the TASI. The index has underperformed in recent years, given the health of the economy, bringing valuations to an attractive level at the turn of the year. "Despite the run-up so far this year, valuations are still reasonable and there are no signs of a bubble emerging. That said, we would be concerned if the TASI continued to rise at its current pace for a sustained period."

Gamble said the market fundamentals are good. The economic outlook is strong, listed company financial performance should be robust and valuations are still reasonable. The risks are external with geopolitical tension within the region and further economic problems in the euro zone - the main pressure points.

Gamble said the 22,000 figure is not a level investors should be thinking about. In the mid-2000s the Saudi market became a huge bubble that burst. It will not get to anywhere near 22,000 for a long time. This can be illustrated by the performance of other markets after severe crashes, notably the Nasdaq, which is currently around half its peak of 2000 and the Japanese stock market, which is currently little more than a quarter of its peak in 1990.

"At least so far, purely in terms of technical indicators, it is most certainly not a bubble, Jarmo T. Kotilaine, chief economist at the National Commercial Bank, said.

The market is reasonably valued and its growth prospects underpinned by attractive economic fundamentals. Both by regional and international standards Tadawul offers value right now. These opportunities would naturally increase thanks to steps to open up the market. Having said all this, there is evidence that money is moving from land and real estate to shares. This is partly in response to concerns about taxation/levies on undeveloped land, Kotilaine said.

Commenting on the stock market surge, Omar Al-Juraifani, a Saudi financial and economic analyst based in the Eastern Province, said: "It is a bubble. Yes, if they do the same mistake. The stock market will be a bubble if the investor looks for short-term investment, such as daily trade."

Farouk Miah of NCB Capital's Equity Research said: "Good fundamentals and expected earnings growth of 18 percent for the Saudi market supports further growth for the TASI from current levels." However, he said, concerns over the US, European debt and a slowdown in China will all act as brakes on TASI's possible growth.