27 March 2006

Investors bewildered by GCC stock market crash | News Feature

Investors bewildered by GCC stock market crash | News Feature: "The Dubai Financial Market is most badly hit, and is now 45% off its all time high of last summer; and Abu Dhabi has followed with a 33% slump in share prices. Doha has taken a similar downward path with shares down a more modest 20%.

But until the past couple of weeks the two biggest GCC stock markets in Saudi Arabia and Kuwait were unaffected. Thus the impact of a 27% fall in the Kingdom and 14% in Kuwait has been all the more unexpected, leading to calls for government intervention to prevent a further downturn, and to correct shares to 'more normal' levels.

Beyond 'fair value'
However, this misses the point. Share prices have been driven upwards way beyond their 'fair value'. The Saudi Arabian bourse has been trading on a market price-to-earnings ratio of 40 compared with a 'fair value' of say 15 for an emerging market with a good economic outlook. "

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