Gulf Arab stock markets will continue to attract foreign investors seeking to tap a regional economic boom even after a rally in the fourth quarter left "few bargains" on regional bourses, Nomura said on Sunday.
All seven stock markets in the world's top oil-exporting region rose at least 24 per cent in 2007 after four of them, including Saudi Arabia's, dropped more than 35 per cent in a stock market crash a year earlier.
"There are few ... bargains left but valuations should be supported by a resilient macro-economic environment, lower interest rates, moderate earnings growth and plentiful liquidity," Nomura said in a note on Sunday. "In relative terms the Gulf remains an appealing place to invest, but valuations by conventional measures have become extended," the Japanese investment bank said.
Saudi Arabia's stock market, the largest in the Arab world, surged almost 43 per cent in the fourth quarter, the best-performing index in the Arab world.
The world's largest oil exporter plans to allow foreigners to invest in its stocks through domestic funds, its stock market regulator said in December.
HSBC said last month it was creating two indexes with funds and products to give foreign investors exposure to Saudi stocks.
After the fourth-quarter rally, shares of Saudi Basic Industries Co., the world's largest chemicals firm by market value, were trading at 14.9 times expected 2007 earnings, Nomura said.
"Despite the higher prices and more challenging valuations there are no indications of a major correction at this stage," Nomura said.
"Foreign investors ... appear to have embraced the oil-growth story and raised their holdings directly or through nominee accounts," it said.
Oman's benchmark was the Gulf Arab region's best performer last year, rising almost 62 percent.
Gulf Arab markets "are likely to continue attracting new foreign capital as long as fund inflows remain strong," Nomura said. (Reuters)
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