Will GCC stock markets recover this autumn?

The timing of Ramadan this year means that the traditional post-holy month return of investors to GCC stock markets is put back until the last few days of September.

The big question then is whether this will herald a stock market upturn. Last autumn regional stock markets collapsed by up to 70 per cent and have been bouncing along the bottom for the past eight months, although the past two months have shown a slight recovery on the back of higher oil prices.

Oil up, stocks still down

It is very notable that while oil prices have recovered from the $33 low of December to more than double that amount, GCC stock markets have stayed down. There has been none of the big rally so evident in other emerging and developed stock markets.

Why this massive collapse of confidence and no recovery? It has to be because the construction and real estate boom had become so important to the GCC economies that its collapse has blown business and investment confidence away.

It does not help that construction, real estate and the banks supplying the loans to the latter, are major constituents of the local stock markets. Thus the real estate crash is reflected and perhaps even exaggerated in its impact on the local bourses.

So that must mean that if you are looking for a GCC stock market upturn this autumn then you have to see a recovery in real estate and construction. This does not look very likely at all. The down cycle still has someway to run, and is relatively youthful.

Real estate recession

Just look at the US housing market where it is still a matter of controversy to suggest it might be bottoming out after almost three years of decline. It would not be unreasonable to think of a similar timescale for the GCC given the scale of the boom that has bust.

Therefore local stock markets would have to find support somewhere else for a recovery this autumn. The oil price is the obvious wild card.

But expert opinion is divided between $20 and $70-80 oil, and a good case can be made for both price levels. That seems to leave a stock market punt this autumn as little more than a gamble, like tossing a coin, and under those circumstances it is hard to see much of a recovery in share prices, unless a new global bull market emerges and some of it begins to spread into this region.