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The six Gulf stockmarkets were up 92% on average last year – and have notched up an impressive 500% gain over the last three years. “There has been a lot of money chasing these markets, and that has helped to drive the valuations of shares skyward,” Gary Potter of Credit Suisse Asset Management told Jenne Mannion in The Times.
But “what goes up must come down”. There has already been a major correction in the Middle Eastern markets. Last week, the Saudi Arabian market fell 5% in one day – the maximum allowed by regulators (which means it has fallen by a quarter in the last month), while Dubai fell 12% last Tuesday, to bring a total loss of nearly 40% so far this year.
Whether there were fundamental reasons for the sharp declines, or whether it was simply the bursting of a speculative bubble, is unclear. Investor sentiment was already fragile following indications by the Bank of Japan that it would reverse its loose monetary policy, which might end the availability of “cheap yen” to fund investments in high-return markets throughout the world. Emerging markets in general wobbled, but looming worries about US conflict with Iran made the Gulf especially vulnerable. Investing in the region suddenly became less attractive.
But Gulf State rulers are reluctant to see their counties’ markets collapse. The losses last week were so sharp that Kuwaiti investors angered by the slump held a rare – but peaceful – protest to urge the government to intervene.
In Saudi Arabia, following a directive from King Abdullah, the market authorities announced that non-Saudi citizens resident in the kingdom would be allowed “to invest directly in the stockmarket”, according to Middle East Online. That opens up the Saudi Tadawul All-Shares Index to six million new investors.
Prince Al Waleed bin Talal told Newsweek that he thought “last Wednesday was an opportunity to calm down fears in the market”. There has been too much cash chasing too little tradable equity, he said. He then revealed he planned to invest $2.7bn in the Saudi market, which responded by bouncing 4% higher.
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Annunziata Rees-Mogg
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