Global markets, including GCC stock exchanges, experienced sharp fluctuations in recent months due to financial, geopolitical and technical factors. The impact of these bouts of volatility have typically varied from one region to another.
As for the GCC stock exchanges, the factors have been varied and often contradictory, intensifying fluctuations on the one hand while contributing to relative stability on the other. This seeming contradiction is partly attributed to the overarching reasons affecting global stocks, including the continuous rise in interest rates since last year and continuing through 2023.
This pushed interest rates to exceed 5.5 per cent on the dollar, and consequently, the GCC currencies, which are pegged to it. This allowed investors to achieve returns on their deposits that are either equal or better than those on their investments in the stock markets.
This allowed investors to achieve returns on their deposits that are either equal or better than those on their investments in the stock markets.
As for GCC stocks, they have also been affected by fluctuations in oil prices and from geopolitical tensions. At the beginning of last week, GCC markets experienced a decline ranging between 2-3 per cent, but recovered a portion of their loses at the beginning of this week, after oil prices recorded a 3-4 per cent rise for the same reasons that led to the downturn in stocks.
An oil price correlation that’s favourable
The correlation between geopolitical events and oil prices contributed to stability in indicators for GCC financial markets. Also, Gulf stocks have become less impacted by oil price fluctuations and political events alike, because of the diversification of their economies, and stability in the bloc’s political and security situation despite conflicts around the Arabian region.
Such contradictions provide a golden opportunity for speculators given the sharp market fluctuations and eventually lead to significant gains.
Speculators can do so by sparking fear among investors who often follow a herd mentality.
Such behaviour leads to indiscriminate selling, resulting in significant losses for these investors who act without proper research and understanding of the developments, or a technical analysis of the markets, which are the only ways to make informed decisions.
Since interest rates have almost reached their peak – further hikes will be limited – and with the potential for reduction by end 2024 following any decline in inflation, long-term investment requires taking this into account. It also involves making the most of the current high interest rates by diversifying investment portfolios for institutions and individuals.
GCC stock market investors’ decisions must link financial market dynamics to oil prices, which have stabilized at higher levels, and on geopolitical outcomes. While GCC bourses will continue to see more sharp changes, the oil price levels provide, for the first time, a kind of stability and potential for gradual growth, unlike when they were prone to frequent collapses in oil prices, accompanied by instability in areas surrounding the Gulf.
As for now, there are more conditions for stability in GCC's financial markets, with listed companies, especially banks, set to achieve good results and allowing for relatively high dividend payout. It could coincide with further stock price increases, with some trading at less than their true value.
This situation requires seizing opportunities through sound choices. Investors should refrain from speculative trades or go in for panic reactions, by adopting a long-term strategy of thorough examination of companies’ financial positions from their quarterly and annual results.