Arab Times Online - 29/4/2006

KUWAIT CITY: In an attempt to document the correction period, we describe some of its characteristics from time to time says the Al-Shall Weekly Economic Report published by Al-Shall Consultancy & Investment Co. headed by Jassem Al-Saadoun. And in this paragraph, we would like to assure that the local market has passed the panicking phase, and it is in its second correction period or the most volatile period, where the market shows severe upward and downward movements. This phase will last for some time.

And the important part is not to pay much attention to the upward and downward trend’s psychological effects but to monitor the movements of the index, i.e. to separate the companies that are operating within their activities from the companies that aren’t, and between the companies with superior dedicated management teams and companies with managements that bet on increase in asset prices. This separation occurs with some discrepancies, which is a normal and healthy evolution.

Another healthy phenomenon should also be documented: the decrease in public demand for government intervention in the market to support the stock exchange on one hand, and on another hand, the growth of the official regulatory party that refuses to intervene on a principle basis. The following tables document these three phenomenon, including the correction period. the first table is to explain the correction effect on each sector, the second table is to show the separation of companies according to the change in their prices and finally the third one is to distribute the companies according to liquidity.

Gulf stock markets
For the second week in a row, losses of Gulf capital markets continue. Five markets, out of 7, lost between Wednesday closure (19/04/06) and last Wednesday (26/04/06) with the exception of Saudi Stock Market and Dubai Financial Market. Losses during last week ranged between 0.7 percent and 5.4 percent. The psychological effect for the beginning of last week and the week before that was obvious on the market decline. Five markets achieved record minimum levels and broke the minimum level in 2005 and what has passed of 2006. We did not expect this. This occurred despite the occurrence of two conflicting factors.

On one hand, matters are reaching a sensitive point between Iran and its opponents on the nuclear issue and on the other hand oil prices are achieving new record levels with maximum possible production and continued high prices. Although we believe that prospect of military confrontation with Iran are semi-impossible and that some of the listed companies in these markets are dealt with unfairly with their current prices, we still believe that the situation will persist until the beginning of next summer at least. The companies which announce results of the first quarter at a later date will not announce good results.

With most dealers' in a bad mood, the impact of such announcements will be multiplied like the exaggeration in Iran's nuclear file. Because the negative Saudi market's influence is a major major as the table shows and as its volume make the transfer of wealth impact likely-and some Saudis are strong dealers in other marketsthe negative psychological factor will push all markets downward. The table shows the week's performance in accordance with the highest losses and then shows the minimum level scored by these markets and their losses from their highest achieved levels. Finally, the table shows the difference between last Wednesday's level and the end of last year and the end of the first quarter of the current year.

The performance of Gulf economies
A World Bank report emphasizes a major expansion in the Gulf economies that is expected to continue in the current and following years. The growth in the nominal GDP will reach its minimum of 12.5 percent in Saudi Arabia in 2006 and 6.5 percent in Kuwait in 2007, and will hit its maximum 18.6 percent in Qatar and 17.3 percent in Kuwait respectively in 2006, and 10.7 percent in Bahrain in 2007. The aggregate nominal GDP for the 6 countries of the GCC in 2006 will be $680.4 billion and $728.5 billion in 2007 up from $597.3 billion in 2005, and from $350.3 billion in 2002.

The expansion occurs while inflation remains under control and will reach its maximum at 5.5 percent in 2006 and 5.0 percent in 2007 in the UAE, and a minimum of 1.0 percent in both 2006 in 2007 in Saudi Arabia. This is expected to take the effect away from the historical pressures on the foreign currency balance, where the surplus of the current account balance ranges from a minimum of 7.3 percent and 5.3 percent of GDP in 2006 and 2007 respectively in Bahrain, and a maximum of 51.7 percent and 51.8 percent of GDP in 2006 and 2007 respectively in Qatar. If we exclude some corrections in the capital markets of these countries, the indices level of the total economy cannot be better. These positive developments were reflected in the per capita income for the 6 countries, which is expected to be $26,600 in 2006, rising up by about 70.4 percent in five years.

Per capita income is expected to be the highest in Qatar at $53,500 in 2006 and the lowest in Oman at about $13,900. As for the UAE it is expected to reach $30,300, and $29,500 for Kuwait, and $17,900 for Bahrain, and finally $14,600 for Saudi Arabia. The table shows that the performance of the markets differed between the end of last Wednesday and the end of the first quarter, some won and some lost. But we believe that their majority will be winning by the end of the second quarter vis-à-vis the first quarter. We recommend to let the correction take its full range, especially the Saudi market, because it is the largest and most significant and its components might genuinely lead the market in the right direction.

Oil
Time and evidence ascertain that the age of cheap oil has gone forever and that oil prices will continue to hang around $60 per barrel at a minimum. We should emphasize that the justification for this increase are not the short and medium term crises but the imbalance in world oil markets which favor demand at the expense of supply. Short and medium term variables maintain oil prices within the high limits of their originally high averages as last week when American oil prices-West Texas-crossed the record $75-per-barrel barrier. The Iranian nuclear profile and the mounting tension around it with American and British tough position on the one hand and the Iranian position on the other, with probable military confrontation, is another factor. The beginning of travel seasonsummer- and the probable gas shortage coupled with decreasing stocks in the United States are factors that keep prices high.

Kuwait Stock Exchange
The Kuwait Stock Exchange (KSE) last week was less active than the week before as all the major indices showed a decrease including the general index. The Al-Shall Index (value weighted) closed at 646.8 points last Wednesday, showing a decrease of 6.4 points or about 1.0 percent compared to previous week’s closing. However, the index is down by 50.3 points or about 7.2 percent compared to its closing at year end 2005.