Last year, the GCC stock markets made significant gains, whereby Abu Dhabi Securities Exchange general index shot up 68 per cent and Dubai Financial by 28 per cent.
Also, the Saudi Tadawul was up 30 per cent growth, Bahrain’s by 39 per cent, and the General Index of Boursa Kuwait 27 per cent. Qatar Stock Exchange’s 2021 performance weighed in with a 11.4 per cent increase and Muscat Securities Market strung out a 12.8 per cent year-on-year, as GCC markets recorded their best growth in 12 years.
Investors are now mulling about the outlook for this year to build new positions on the hottest scrips, especially given the rapid economic and geopolitical developments in the region. Excluding geopolitical events that could have a temporary effect, general economic indicators indicate that Gulf bourses are poised to achieve further gains. However, investors must not give in to making unsecured speculation in the hope of instant returns.
Reasons to hope
There are certainly those who question the fundamentals of this optimism, which therefore must be answered. First, there are prospects for oil, with the average price likely to stick between the forecasts by the International Energy Agency and those offered by major financial institutions.
In general, the average price of a barrel of Brent oil will remain relatively high at between $70 and $75 per barrel, which will lead to continued recovery of GCC economies and provide significant liquidity in the markets. The second factor relates to full economic recovery from COVID-19 and a return to pre-pandemic levels, which will provide the basis for higher profits by listed companies. An indication of this will be available in the full-year 2021 results that will be announced by companies.
Banking sector secures the numbers
Gulf banks and financial institutions appear to have regained most of their momentum, helped by their solid reserves and the financial support they received from GCC central banks during the COVID-19 crisis, which in turn will help accelerate recovery this year.
The third factor lies in the expectations of GCC economies achieving high growth rates, which will be reflected on the performance of the Gulf stock markets as a mirror for the wider economy. In addition, new companies are expected to list through IPOs, whether through offering a portion in existing non-joint stock companies or by establishing new entities. This will allow investors opportunities conducive for diversification and support the development role of GCC stock markets.
These opportunities are to be exploited and gives a chance at greater transparency in the work of listed companies. Legislation must be developed further for the governance systems of these bourses, helping gain more confidence among non-Gulf investors. It has been proven that increasing the proportion of foreign contribution to the ownership of companies is not enough to attract foreign capital into GCC s tocks – it must be accompanied by the right governance and legislation.
So, there are new opportunities for local and foreign investors in the GCC bourses in 2022. Investors can make the most of opportunities to achieve rewarding returns, compared to some other aspects of investment, including bank deposits that reach zero, which will remain low even the interest rates on the US dollar are expected to rise this year by the US Federal Reserve. The rise in US dollar interest rates will be reflected on the GCC currencies linked to the US dollar, giving preference to other investment aspects, including stocks and securities in the current year.
-- The writer is a specialist in energy and Gulf economic affairs.
