But they said Saudi Arabia and the other oil-rich Gulf states needed to proceed with reforms to encourage wider participation in politics, while promoting market transparency and privatisation, to maintain investor confidence and aid stock market growth.
The Saudi and Kuwait bourses, the two largest Arab markets, surged 76 and 101 per cent respectively in 2003 as more oil revenue fired up economies and Saddam Hussein's fall brought hopes of stability and lucrative contracts in Iraq. "Assuming there is no new war, and no crash of oil prices...we expect these markets to continue to grow," said Bishr Bakheet of Saudi-based Bakheet Financial Advisors. "Due to its proximity, Kuwait has been the main beneficiary as its telecom firms have won contracts in Iraq," Bakheet told Reuters. The bourse has a capitalisation of about $60 billion.
Joe Kawkabani of Dubai-based Shuaa Capital agreed. "Saudi Arabia is undergoing strong growth, due to state spending, Iraq's opening and oil prices. And I think this will be translated into growth in the equity market," Kawkabani said. "On a regional level I wouldn't say it's a bubble."
Strong oil prices in 2003, with average US crude prices at a 20-year high, were a boon for the economy of Saudi Arabia, the world's largest oil exporter, and the other Gulf States. But brokers said that, for Gulf markets to thrive, governments needed to implement political and economic reforms to attract more local and foreign investors.
Saudi Arabia last year passed a law to regulate its bourse, capitalised at about $157 billion. The kingdom has also taken initial steps towards political liberalisation. "For a long time the bureaucracy and red tape has destroyed the business spirit, but now reforms signal a will among (Saudi) officials to improve the spirit," Bakheet said.
Gulf markets, especially Saudi Arabia, have also been buoyed by investors' repatriating a small portion of the estimated $1 trillion of Arab funds held in the West after the September 2001 attacks on the United States.
"We have seen Saudi money supply grow 15 per cent in 2003 versus a normal rate of seven per cent," Bakheet said. "These are funds repatriated for fear of being blocked for being Arab, Muslim or somehow linked to the war on terror."
The UAE three markets, capitalised at a total $40 billion, rose nearly 29 per cent last year. Qatar's bourse, capitalised at about $27 billion, rose 69.8 per cent in 2003 while Oman's bourse, capitalised at less than $6 billion, rose 42 per cent last year.
Bahrain's market, capitalised at $10 billion, gained 28.8 per cent last year and has hit all-time highs since.
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